In a victory for financial reformers who want to lessen Wall Street’s influence on regulatory policy, the White House on Tuesday nominated Lisa Fairfax, a law professor from George Washington University, to fill an open Democratic seat on the Securities and Exchange Commission vacated by current Commissioner Luis Aguilar.
The administration opted for an academic recommended by Sen. Sherrod Brown, D-Ohio, and favored by Sen. Elizabeth Warren, D-Mass., over their initial choice, Keir Gumbs, a corporate lawyer with the high-powered firm Covington & Burling, which represents numerous financial institutions. The selection is an affirmation of Warren’s strategy of making it difficult and painful for Obama to pick nominees with ties to Wall Street.
Gumbs, a former SEC staffer, allegedly gave CEOs tutorials on how to avoid disclosing their corporate political spending while at Covington. He also represented the American Petroleum Institute before the SEC. He was seen as a corporate-friendly ally for Chair Mary Jo White, who would help marginalize the more reform-minded Democrat on the panel, Kara Stein. That’s why White lobbied to replace Aguilar with a moderate.
But activist groups like Rootstrikers and Public Citizen whipped up opposition to Gumbs, leading to the White House agreeing to vet additional candidates without ties to corporate America. Word of Fairfax’s potential appointment leaked in September.
Fairfax is an expert on shareholder activism: the efforts by investors to force changes in corporate behavior after acquiring large blocks of shares. Warren included Fairfax on a list of potential candidates for the SEC vacancy, though Brown ultimately made the recommendation. If she proves a strong advocate for reform and an ally to Kara Stein, it puts White on the hot seat and will make her plans to weaken the commission more untenable.
The Obama administration paired the selection of Fairfax with Hester Pierce, a former aide to Sen. Richard Shelby, R-Ala., who would replace outgoing Republican commissioner Daniel Gallagher. The package deal is likely to smooth confirmation.
Financial reformers see blocking Gumbs and getting Fairfax onto the board as a triumph. Rootstrikers, among the leading groups opposing Gumbs, tweeted, “It’s official — next SEC nominee is not another Wall Street insider, thanks to grassroots pressure!”
Denying Gumbs the SEC appointment, against the preferences of the White House is the latest in a concerted campaign to increase the diversity of perspectives at financial regulators — and in particular to end the “revolving door” between Washington and Wall Street. The philosophy can be summed up with one phrase: “Personnel is policy.” Who gets to implement and enforce laws, or exercise independent judgment, has an enormous bearing on the ultimate outcomes.
By using an inside/outside strategy, with politicians and activist groups forming a united front, it makes it more difficult for current and future Democratic administrations to populate their staffs by picking from the Wall Street talent pool. Regardless of individual views or the desires of Wall Street-aligned donors, if presidents can’t get their picks through the Senate, they’ll take the path of least resistance, and open up their personnel to a less corporate-friendly point of view.
Reacting to the news, Warren spokesperson Lacey Rose said, “Senator Warren looks forward to meeting with the nominees and discussing their views on how the SEC can better protect investors and the safety of our financial markets.”