Regulators are finding opportunities at firms looking for government experience
Thursday, December 30, 2010; 12:16 AM
The president's recently departed budget director is joining Citigroup.
The New York Federal Reserve Bank's derivatives expert is joining Goldman Sachs.
And numerous investigators from the Justice Department and the Securities and Exchange Commission are joining Wall Street's top law firms.
The vast overhaul of financial regulations and the renewed intensity of investigations into white-collar crime has been a boon for regulators, prosecutors and financial policymakers looking to cash in on their government experience and contacts.
In recent months, prominent officials from the White House, Justice Department, SEC, banking regulators and other agencies, both federal and state, have been walking through the proverbial revolving door to join Goldman, Citi, other financial companies and top law firms in Washington and New York.
Lawyers making the move, who often were in the private sector before joining the government, can reasonably expect their income to go from less than $200,000 to $400,000 or more, legal recruiters say.
Government agencies have conflict-of-interest rules that place limits on what former officials can do on their new jobs. But the number of people passing through the revolving door invariably raises questions about how the promise of a lucrative job affects the thinking of officials while they are in public service.
"They're building relationships with the people on the other side of the table," said Stavros Gadinis, an assistant law professor at the University of California at Berkeley who has studied the relationship between financial regulators and firms. "If you're an SEC official prosecuting a case against Goldman and at the end of the table you have the general counsel of Goldman, you might be thinking that in a few years you will want to be able to call the general counsel and ask for a job."
On the other side of that argument, Gadinis said, financial regulators who show they are aggressive and good at their jobs will also be looked upon favorably by companies.
The conflict of interest rules vary but follow a similar pattern. Officials can't work on specific cases they worked on while in government. And they're not allowed to appear before their former employer for one to two years, depending on the issue.
Orszag joins Citigroup
One of the high-profile moves in recent months involves former budget director Peter Orszag, who was a key member of President Obama's economic team. He is joining Citi as a vice chairman of global banking. There, he will be among a team of top bankers who nurture the firm's relations with major clients.
A statement from a Citi spokeswoman noted that his role "will not involve contact with U.S. federal government officials."
Goldman has hired Theo Lubke, a long-time Federal Reserve Bank of New York official who led efforts to overhaul the massive derivatives market. Goldman is a major player in that market and was the subject of intense controversy in 2009 when it came to light that the firm had received billions of dollars from American International Group on derivatives contracts. AIG was bailed out by the Fed and Treasury.
At Goldman, Lubke will be in the securities division as chief regulatory reform officer. He will be working with top executives to manage implementation of the Dodd-Frank regulatory reform law.
Goldman also has hired David Markovitz, a lawyer who previously was a senior investigator for New York Attorney General Andrew Cuomo. Cuomo launched a number of high-profile Wall Street probes.
A Goldman spokesman said Lubke and Markovitz would not be available to comment.
Kevin Puvalowski, who was the deputy special inspector general for the Troubled Assets Relief Program, has joined the Sheppard Mullin law firm in New York. TARP was the $700 billion bailout program for the financial sector.
"I worked with and got to know folks at Justice, at the Fed, at the Treasury, at the [Federal Deposit Insurance Corp.] and all sorts of federal agencies," said Puvalowski, a former federal prosecutor. "That can be of assistance in my white-collar defense practice. I know the players, whether it's my former colleagues in the Southern District of New York or other agencies. They trust you. You have a name and phone number to call."
Driving such hires are several trends, said lawyers who are making the move and legal recruiters.
The new Dodd-Frank law overhauling financial regulation requires agencies such as the SEC and the Commodity Futures Trading Commission to put in place hundreds of new rules governing how Wall Street operates. According to legal recruiter Michael Lord, new hires have been concentrated in commodities, derivatives and securities fraud.
Impact of Dodd-Frank
Moreover, federal prosecutors, the SEC and others have pressed investigations into financial wrongdoing with a renewed intensity. Major banks, including Goldman and Citi, have agreed to hundreds of millions of dollars in settlements. Many more probes are under way as prosecutors and regulators try to show they are holding accountable executives whose potentially illegal actions may have contributed to the financial crisis.
Elizabeth Papez, a Winston & Strawn lawyer who was a Justice Department official and recently wrapped up a clerkship for Supreme Court Justice Clarence Thomas, noted that companies must deal with new rules as a result of Dodd-Frank, the new health-care law, increased enforcement of foreign bribery laws and changes to the rules governing business dealings with the government.
Daniel Gallagher, a lawyer at WilmerHale and former top SEC official, said it is hard to grasp from the outside how seriously SEC staff and the five commissioners evaluate rules, interpretations and issues facing individual companies. "You can't really understand it unless you're in the fire," he said.