Last week, I visited an alternate universe. The real world sees a pandemic of bank misconduct, but to the white-collar defense lawyers of Washington, the banks are the victims as they bow beneath the weight of regulators’ remarkably harsh punishments.
I was attending the Securities Enforcement Forum, a gathering of top regulators and white-collar defense worthies. The marquee section was a panel that included Andrew Ceresney, the current S.E.C. enforcement director, and five of his predecessors. Four of those former S.E.C. officials represent corporations at prominent white-collar law firms: Robert S. Khuzami, President Obama’s first enforcement director who now plies his trade at Kirkland & Ellis; Linda Chatman Thomsen, who served at the George W. Bush-era S.E.C. and now works for Davis Polk & Wardwell; William R. McLucas, the longest-serving agency enforcement director who is now at WilmerHale; and George S. Canellos, who just left the Obama S.E.C. to work for Milbank Tweed. (The well-known Stanley Sporkin, who served in the agency in the 1970s, rounded the panel out.)
The conference turned into a free-for-all of high-powered and influential white-collar defense lawyers hammering regulators on how unfair they have been to their clients, some of America’s largest financial companies.
The critics have multiple complaints about the S.E.C.
Mr. McLucas and Ms. Thomsen assailed the S.E.C. for applying the “broken windows” theory to corporate crime. Indeed, in a nice bit of message-discipline, one of the Republican commissioners of the agency attacked the practice in a speech at the conference earlier in the morning. This theory, borrowed from the urban policing tactic, argues that crime is deterred when law enforcement agencies arrest people for minor infractions, like riding public transportation without paying the fare. The lawyers argued that the commission has focused too much on smaller infractions, like minor misrepresentations in corporate filings. The lonely Mr. Ceresney explained patiently that the agency was only going to go after patterns of real violations, even if they were small. Not allowing small violations to slide puts companies on notice that the S.E.C. is vigilant, he argued.
Mr. Khuzami and Ms. Thomsen raised questions about whether it was fair for the agency to use administrative proceedings to push its cases. Administrative hearings happen before a specialized court without the usual rules and checks of a true proceeding in the courts. The critics liken it to getting a hometown judge instead of putting the cases up to the test of judges and juries. Banks send their disputes to arbitration rather than the courts. When the government does it, they scream foul.