Democrat Luis Aguilar willing to go his own way on SEC
Luis A. Aguilar occasionally sounds more like someone from the Occupy Wall Street movement than a former corporate lawyer who has spent the past four years on the Securities and Exchange Commission.
Aguilar, a Democrat, has often faulted his own agency — which is led by a fellow Obama appointee — for not doing enough to protect investors or punish financial misdeeds.
But this week, as SEC Chairman Mary L. Schapiro prepared to take up her high-priority plan to tighten regulation of money market mutual funds, which she says have the potential to destabilize the financial system, Aguilar essentially blocked her.
He stood with two Republicans on the five-member SEC in opposition to the proposal, or at least against moving forward with it now. Without his support, Schapiro abandoned her plan to put the proposal to a vote.
Schapiro called the overhaul of money markets unfinished business from the financial crisis of 2008, when the government backstopped money market funds to avert a meltdown.
But Aguilar had long signaled that he viewed the matter differently. It’s a subject on which he has personal history:
He formerly served as an executive of Invesco, a company that manages investment funds, including money markets.
On May 11, Aguilar and the two Republican commissioners issued a statement dissenting from a study that spelled out a rationale for tightening regulation of money market funds.
In an interview earlier this year, Aguilar made it clear that he was not sold on the potential regulations. He said he was concerned that tighter regulations could steer funds into markets that are not as open to the SEC, ultimately making them less regulated. He said steps that the SEC took to address money market funds in 2010 may have been sufficient.
Interviewed this week, Aguilar said he was concerned that, instead of reducing risk to the financial system, the plan could leave investors and regulators with less information. Before moving forward with the proposal, Aguilar added by phone and e-mail, the SEC should study the cash management industry as a whole and the potential for “a stampede to the unregulated markets.”
SEC spokesman John Nester declined to address the commissioner’s views, but he said the agency staff studied the potential for investors to move their money and concluded that if money flowed anywhere, it would likely go to bank products and U.S. Treasury securities, which are transparent and regulated.
The mutual fund industry has argued that changes the SEC was contemplating would be damaging to money market funds and investors who depend on them.
Aguilar’s background raised questions among investor advocates when Senate Democrats promoted him for a seat on the SEC during the George W. Bush administration. The SEC polices and regulates much of Wall Street, including the stock markets, and is responsible for ensuring that publicly traded corporations make proper disclosures about their finances. The fear was that Aguilar would be too easy on corporations.
But after joining the SEC in 2008, Aguilar won praise from some of those early skeptics.
Damon Silvers of the AFL-CIO described himself as one of the converts.
“I can’t think of a circumstance in my career where I more completely misjudged somebody,” Silvers said in an interview this spring. As it turned out, Silvers said, “Luis was a really fearless advocate of investors in the public interest.”
Aguilar has voted against SEC settlements with alleged wrongdoers on the grounds that the penalties were too weak. Last year, he publicly wished for a future in which the staff “brings cases that have obvious deterrence value.”
Weeks later, he urged the SEC to force corporations to disclose how they spend shareholders’ money to promote the election or defeat of political candidates.
Although the Supreme Court in 2010 unleashed such spending, it said the government could require corporations to disclose it.
Aguilar implicitly accused the SEC of neglecting one of its basic duties. A “true investor’s advocate would be focused on whether shareholders and investors receive adequate disclosure,” he said.
Barbara Roper, director of investor protection at the Consumer Federation of America, said Friday that she has faith in Aguilar.
“He has a strong pro-investor record over the course of his career at the SEC,” Roper said, “and in light of that fact, I think people ought to be prepared to give him the benefit of the doubt that he’s voting based on genuine conviction about what’s in the best interest of investors.”
Clashes among the SEC’s five commissioners are hardly unusual. In recent years, Republican commissioners have criticized the agency for taking steps that they describe as overly restrictive or bad for business. But, during the Obama administration, Republicans have been in the minority.
Aguilar’s sometimes fiery critiques stand out because they come from a member of President Obama’s party at a time when an Obama appointee heads the agency. Although she is listed as an independent, not a Democrat, Schapiro was appointed by Obama to lead the SEC’s response to the financial crisis. Another commissioner, Elisse B. Walter, is a Democrat.
On Friday, an SEC spokesman said Schapiro and Walter were unavailable for comment. Earlier this year, Schapiro offered a brief statement about Aguilar: “A commission structure allows for the sharing of viewpoints to ensure our rules are meaningful and our enforcement actions are appropriate — and Luis has been an important player in that process.”
Aguilar connects his stands on behalf of investors to his having done manual labor as a young man. He put himself through college loading and unloading the cargo bays of airplanes at Miami International Airport, he recalled during interviews in May and June. The job called for steel-toed boots, ear protectors and a tolerance for the heat and humidity on the Florida tarmac.
It was a union job, and he recalled that a union steward stood up for him when he needed to schedule work around school.
“It gave me an appreciation, quite frankly, for how hard a lot of people work for their money,” he said. “When you work that hard for your money, you gotta take care of your money.”
Born in Cuba in 1953, Aguilar arrived in Miami in 1960 as a refugee from Fidel Castro’s revolution. He said he remembers “about three families . . . living in two bedrooms” and “a lot of mattresses on the floors.”
“I think he has fully latched onto the American promise and the American dream,” Sen. Robert Menendez (D-N.J.), one of the people who championed Aguilar’s appointment to the SEC, said earlier this year. “Those Americans who originally fled countries because of the lack of freedom are among the most-appreciative of the freedoms that exist in this country and work very hard . . . to preserve them.”
Aguilar’s first term as an SEC commissioner expired in 2010. Although he continued to serve as a commissioner, he was in limbo for almost a year until Obama announced in May 2011 that he was nominating him for another term.
When commissioners cast votes in private on whether to approve settlements with people or businesses charged with wrongdoing, Aguilar has repeatedly refused to go along.
“There have been quite a few cases that I’ve not been able to support,” he said.
“Many pass 4-1 or pass 3-2,” he said.
In a case last year involving a Morgan Stanley trader, he took the highly unusual step of issuing a public dissent, saying the employee should have been charged with fraud.
The dissent came at a time when the agency was on the defensive for entering a $153.6 million fraud settlement with J.P. Morgan Securities without charging any individual at the firm.
Aguilar’s outspoken style is in contrast to some of his colleagues on the SEC. In a speech this year on corporate political expenditures, he offered a pointed description of the pressures brought to bear on the SEC while it is drafting rules.
“Unfortunately, the voices of investors are often drowned out by the louder, better-funded, and often better-connected voices” of companies, financial institutions and their lawyers, he said.
In a speech at the same conference, Walter, his Democratic colleague, discussed the virtue of restraint when SEC commissioners use “the bully pulpit that goes with the title ‘Honorable.’ ”
Departing from the usual policy fare, she talked at length about how commissioners should comport themselves, including “when to compromise and when to hold fast” and “when to speak and when to hold my tongue.”
“For me, it is critical to put the agency first and my personal views second,” she said. “Being a commissioner provides a platform that each of us should use responsibly and with care for the agency itself,” she said.
In an interview earlier this year, Aguilar said his primary responsibility is to investors and the American public.
“And if I need to criticize the agency or some policy of the agency or some action or inaction of the agency in order to benefit investors or the American public, I won’t be reluctant to do so,” Aguilar said.
Hilzenrath is the editor in chief of the nonprofit Project on Government Oversight, but was a Post staff writer when he wrote this story.