A familiar face with deep roots on Wall Street has returned to the Securities and Exchange Commission to help the agency draft its fiduciary rulemaking just as two agency commissioners are planning to exit.
Commissioners Luis Aguilar, whose term expired on June 5, and Daniel Gallagher are planning to depart as the agency drafts a term sheet on what a fiduciary rule should look like.
Gallagher’s five-year term was set to expire in 2016, but published reports say that the Republican commissioner plans to remain on the five-member commission until a successor is confirmed—which could take months.
A spokesperson in Aguilar’s office told me that while Aguilar, a Democrat, “has indicated that he’s not seeking another term, he has no current plans to leave.” He could stay at the agency until the current Congress ends.
Duane Thompson, senior policy analyst at fi360, noted that one “convenience” of having both Aguilar and Gallagher leave at the same time is that it makes it easier for Congress to approve a Democrat and a Republican at the same time. That “keeps parity and avoids deadlock” at the commission, Thompson said.
However, if Aguilar left and Gallagher didn’t, Thompson said there could be a 2-2 deadlock on a fiduciary rule vote during SEC Chairwoman Mary Jo White’s term as chair.
David Tittsworth, the former president and CEO of the Investment Adviser Association who’s now with the law firm Ropes & Gray, added that “pairing a Democrat and Republican obviously enhances the chance for a smooth confirmation process in the Senate.” Historically, “most SEC nominees have been approved by unanimous consent by the Senate during either the August or December recesses. But time is running short for the August recess scenario, given the fact that any potential nominee will be subject to a background check, and that a formal nomination will have to occur, followed by a Senate confirmation hearing.”
Aguilar has been a very strong proponent of a fiduciary rule while Gallagher has vehemently come out against such a rule.
But just as Aguilar and Gallagher are set to depart, a familiar face is returning to the agency.
Prodigal Son Returns
White announced in late May that Andrew “Buddy” Donohue, former director of the agency’s Division of Investment Management, would rejoin the agency as its chief of staff to help shape a fiduciary rule.
White said that Donohue’s “deep knowledge of asset management” would be especially useful as the commission “advances its rulemaking agenda for addressing potential risks in asset management and considers a uniform fiduciary standard.”
Donohue served as director of the agency’s Division of Investment Management from May 2006 to November 2010. Since leaving the commission, he has been managing director, associate general counsel and investment company general counsel at Goldman Sachs in New York.
But critics complain Donohue’s return reflects the ongoing revolving door of hiring Wall Street executives to SEC posts.
Americans for Financial Reform—whose partners include the Consumer Federation of America and AFL-CIO—told President Barack Obama in a June 15 letter that it’s of “utmost importance” that he nominate candidates to replace SEC Commissioners Gallagher and Aguilar who have “a strong and demonstrated commitment to protecting investors and to moving ahead with needed reforms in our financial markets.”
Too often, AFR told Obama, “nominees to serve on the SEC have been ‘revolving door’ insiders with a history of moving back and forth between Wall Street firms seeking to escape accountability and the agency charged with defending the public interest. At best, the revolving door creates a situation where key commissioners must repeatedly recuse themselves from critical enforcement or rulemaking decisions, which is highly problematic.” At worst, AFR continued, it leads to decisions that are “systemically biased toward the interests of financial industry insiders and away from the public and investor interest. We need a dramatic change in approach as compared to the pre-crisis SEC.”