The Washington PostDemocracy Dies in Darkness

The Finance 202: Preet Bharara, Gary Gensler top list of potential picks for SEC chair

with Brent D. Griffiths

Wall Street is bracing for the incoming Biden team to name the industry’s top cop. And so far, the list of candidates for the job of chairing the Securities and Exchange Commission has the industry justifiably worried.

Two at the top of the list — Preet Bharara, the former U.S. Attorney for the Southern District of New York, and Gary Gensler, the former Commodity Futures Trading Commission chief — have built reputations as no-nonsense enforcers against industry wrongdoing.

The Biden team has yet to make a decision. But eight informed sources representing both industry and its detractors agree on the contours of the field and the forces shaping the decision.

Several agree an announcement will be imminent once the president-elect names his choice for attorney general. And the incoming administration is keeping a brisk pace of appointments, naming two more Cabinet picks on Tuesday: Tom Vilsack for secretary of agriculture and Rep. Marcia L. Fudge (D-Ohio) to lead the Housing and Urban Development Department.

Beyond Bharara and Gensler, others in the mix for the SEC earn positive reviews from industry critics who want to see the commission take a much tougher line against Wall Street firms after four years of Trump-era deregulation. Among them: Commissioner Allison Lee, who is widely expected to be named acting chair when the current chief, Jay Clayton, steps down at the end of the year; former commissioner Kara Stein; Boston College law professor Renee Jones; and Barbara Roper, director of investor protection at the Consumer Federation of America.

More moderate contenders would face an easier path to confirmation in a Republican-controlled Senate. 

Yet to varying degrees they could inflame liberals pressing for a more activist commission.

They include: Roger Ferguson, TIAA chief executive and a runner-up for treasury secretary; Rob Jackson, who left the commission earlier this year to return to his native New York; Keir Gumbs, a former SEC lawyer now working for Uber; Chris Brummer, a Georgetown University law professor; and Lisa Fairfax, whom Senate Democrats blocked from the commission in 2016 after she equivocated on transparency for corporate political spending.

Tyler Gellasch — a former top SEC staffer and executive director of investor trade group Healthy Markets — says the Biden administration will want the commission to focus on rebuilding accountability for public companies; discouraging the growth of opaque private markets; and promoting climate disclosures. In addition, he said the incoming team will prioritize punishing bad actors, both firms and individuals.

“There’s a significant concern going forward over how aggressively the SEC is going to bring cases,” he says. “How aggressively are we investigating? And when we find violations, are we going to enforce tough penalties? This commission largely went with wrist-slapping.”

Gensler and Bharara’s backgrounds suggest they would bring different strengths to those mandates.

Gensler has emerged since the 2008-2009 financial crisis as a regulator with the zeal of the converted.

Now, he is leading the Biden transition’s agency review team. But back in 2008, when then-President-elect Obama tapped him to lead the CFTC, he was viewed with suspicion by liberal Wall Street reformers. It owed to his background as a Goldman Sachs partner and then, as an aide in the Clinton Treasury Department, his opposition to stricter regulation of derivatives.

But as policymakers tackled a rewrite of Wall Street rules in the wake of that crisis, he leveraged his perch at the theretofore sleepy CFTC to advance tougher restrictions than Obama’s own treasury had embraced.

He was “uniquely effective at shaming public officials,” Noam Scheiber wrote in “The Escape Artists” of Gensler’s public campaign for a regulatory clampdown on derivatives, the instruments that helped magnify the destruction of that economic meltdown. His effort won over much more prominent Democrats on Capitol Hill and in the administration leading the regulatory rewrite. At the end of his first year on the job, “as improbable as it would have seemed a few months earlier,” Scheiber wrote, “Treasury now felt the need to declare it stood shoulder to shoulder with Gary Gensler.”

As one lobbyist for financial services interests tells me, “My clients would freak out if he got SEC… He’s the kind of guy banks fear because he can get outcomes.”

Bharara’s background as a prosecutor suggests his focus would fall more heavily on enforcement.

The one-time chief counsel to Sen. Charles E. Schumer (D-N.Y.), Bharara made a name for himself as the top prosecutor in New York City, securing high-profile insider trading convictions and settlements, including against the hedge fund SAC Capital Advisers. (That case provided the inspiration for the Showtime series Billions.)

In that role, “in everything he did, Bharara made it clear that he saw himself moving on to bigger things,” Sheelah Kolhatkar wrote in “Black Edge.” He was in the job from 2009 until President Trump fired him in 2017 after Bharara refused to resign.

Some industry critics worry Bharara would prove the second coming of Mary Jo White, who also served as U.S. attorney for the Southern District of New York and went on to chair the SEC in Obama’s second term. Liberals pan her record there as too friendly toward Wall Street interests.

But barring major pushback from the left, Bharara “seems really likely,” another Wall Street lobbyist tells me. “If you look at his background and credentials, he checks a lot of boxes: Person of color; worked for Schumer; experienced prosecutor; and he’s run an organization. If Biden wants a cop on the beat to rein in perceived excesses, he seems like an ideal candidate.”

Latest on the federal pandemic response

Stimulus talks are a mess, again.

The White House and Mitch McConnell are offering competing proposals: “The Trump administration proposed an economic relief package that would offer far skimpier federal unemployment benefits than what has been proposed by a bipartisan group of lawmakers, adding an element of uncertainty into the fragile stimulus negotiations,” Jeff Stein and Mike DeBonis report.

“Instead, Treasury Secretary Steven Mnuchin has proposed that lawmakers approve another stimulus check worth $600 per person and $600 per child … The new White House proposal was a nonstarter for Democrats and a sharp rejection of the bipartisan efforts that have brought the two parties closer to a compromise on a legislative package …”

  • Mnuchin's latest offer differs from the bipartisan proposal for PUA: “The secretary has submitted a plan to provide about $40 billion in new funding for federal unemployment benefits. Mnuchin’s plan would extend expiring benefits but does not include any supplementary federal benefit, meaning millions of jobless workers would receive no additional federal help … Senate Majority Leader Mitch McConnell also proposed including no additional supplementary federal unemployment benefits in a proposal he released last week."

Mnuchin's proposal is slightly more than the bipartisan offering:

The chaos in a nutshell: “In the span of an afternoon, McConnell suggested dropping discussions on the two biggest sticking points. Mnuchin offered a new proposal to Speaker Nancy Pelosi. A bipartisan group of senators is still working to finalize language on a $908 billion package. And Trump endorsed new stimulus checks,” Politico's Marianne Levine and Burgess Everett report.

  • A ‘liability shield’ continues to be a thorny issue: “Sen. Mitt Romney (R-Utah), one of the architects of the $908 billion bipartisan stimulus plan that revived talks last week, on Monday proposed that immunity from federal lawsuits should only last through this year, according to a draft of his plan circulating among the bipartisan group. The measure would provide an exemption, allowing suits over gross negligence or willful misconduct. Senate McConnell and other senior Republican lawmakers have proposed that the liability shield cover five years,” Eli Rosenberg, 
    Jeff and Mike report. (Mnuchin's proposal also includes liability protections.)
  • McConnell floated a deal that would nix both the shield and aid to state and local governments: “ But at a news conference shortly afterward, Senate Minority Leader Charles E. Schumer appeared to attack that idea, angrily accusing McConnell of putting the livelihoods of firefighters, sanitation workers and police officers in jeopardy.”

Market movers

Vaccine boosts stocks to more records.

Wall Street continues to surge on positive news about Pfizer's candidate: “The Dow Jones Industrial Average gained 104.09 points, or 0.4 percent, to close at 30,173.88. The 30-stock Dow hit an intraday record of 30,246.22. The S&P 500 advanced 0.3 percent to 3,702.25. It marks the S&P 500′s first close above 3,700. The Nasdaq Composite climbed 0.5 percent to 12,582.77,” CNBC's Fred Imbert reports.

“Dow Inc., Johnson & Johnson and 3M were among the best-performing Dow stocks, rising more than 1 percent each. Energy led the S&P 500 higher, popping more than 1.5 percent. Pfizer shares rose 3.2 percent and reached their highest level in about two years. BioNTech, which developed the vaccine alongside Pfizer, saw its stock rise by 1.9 percent.”

But 2021 could be a much tougher year: “Investors are optimistic about stimulus from the incoming Joe Biden administration, more help from the Federal Reserve, relief as covid-19 vaccines are administered to millions and — most hopefully — a return to some kind of normal,” CNN Business's Paul R. La Monica reports.

“There's no guarantee that this scenario will play out. Stocks have gone up so much this year that all of 2021's good news may be priced in and then some. It could be harder for stocks to keep climbing.”

Tesla launches another $5 billion share sale: “The company unveiled a $5 billion capital raise … its second such move in three months as the electric-car maker cashes in on a stellar rise in its shares this year,” Reuters's Munsif Vengattil reports.

Coronavirus fallout

From the U.S.:
  • At least 15,146,000 cases have been reported; at least 285,000 have died.
  • U.S. hits grim milestone in infections: “It took about 100 days for the United States to record its first 1 million coronavirus cases, and 44 more passed before the country topped 2 million,” the Post reports. “But now, in the middle of the most severe surge yet, it has taken just five days to record one million infections, and on Tuesday, the country surpassed 15 million, more than anywhere else in the world by a wide margin.”
  • FDA review confirms safety and efficacy of Pfizer coronavirus vaccine: “The Food and Drug Administration’s review, the first hint of how its career scientists are approaching one of the most momentous decisions in the agency’s history, arrived during a week that could mark a turning point in the pandemic,” Carolyn Y. Johnson, Laurie McGinley, Chris Alcantara and Aaron Steckelberg report.
  • AstraZeneca publishes vaccine details but more data is needed. “Scientists at AstraZeneca and the University of Oxford on Tuesday became the first vaccine developers to publish their full data in a peer-reviewed scientific journal, confirming earlier claims that the vaccine is 70 percent effective overall,” William Booth and Carolyn Johnson report. But it's not clear yet how effective the drug is for those over 55.
  • Senate hearing promotes unproven drugs: “In a move that led even most members of his own party on the committee to avoid the hearing, Sen. Ron Johnson (R-Wisc.) called witnesses who promoted the use of hydroxychloroquine and ivermectin. The National Institutes of Health guidelines recommend against using either drug to treat coronavirus patients except in clinical trials,” the New York Times's Linda Qiu reports.
From the corporate front:
  • Automakers are still making masks and other PPE: “In part, this is because they require the supplies themselves. Production line workers, in particular, need masks and face shields to protect against infection while they're working. But the companies are also addressing demand outside their own companies, especially as cases of covid surge across the US, spokespeople and executives at Ford, Fiat Chrysler and General Motors confirmed,” CNN Business's Peter Valdes-Dapena reports.
  • AT&T CEO defends HBO Max streaming plan: “John Stankey defended the decision to release all Warner Bros. movies online the same day they hit theaters next year, arguing that the film producer had to tweak a 2020 playbook that wasn’t working during the pandemic … Director Christopher Nolan criticized the strategy, telling the TV show ‘Entertainment Tonight’ that the company is using movies ‘as a loss-leader for the streaming service,'” the WSJ's Drew FitzGerald and Joe Flint report.
  • Etsy has become a must-have stock: “More than 90 percent of Wall Street analysts rate the stock a ‘buy' … Such blue-chip status would have seemed like a long shot just a couple of years ago for a company that began in 2005 as a site for a founder to sell handmade wood-clad computers, only to become a punchline for an emergent twee culture that values idealism, niceness and sincerity,” the New York Times's Matt Phillips and Gillian Friedman report.
Around the world:
  • World bank chief sees slow recovery: “It will take two to three years for global output to return to pre-pandemic levels as many developing nations slowly climb out the coronavirus-induced slump with the help of vaccines, World Bank President David Malpass said,” the WSJ's Yuka Hayashi reports.
  • Britain launches the West's first mass coronavirus vaccination: “British health officials hailed the first injections as a turning point in the fight against a virus that has infected 67 million people around the globe, killing more than 1.54 million,” William Booth and Karla Adam report from London.

The transition

President-elect Joe Biden on Dec. 8 introduced his plan to complete “100 million covid vaccine shots” in his first 100 days in office. (Video: The Washington Post, Photo: Demetrius Freeman/The Washington Post)
  • Biden unveils his 100 days pandemic plan: The president-elect said he will sign an executive order the day he is sworn in to require Americans to wear masks on buses and trains crossing state lines, as well as in federal buildings. “Biden also pledged to distribute “at least 100 million covid vaccine shots” during that time, singling out educators, who he said should get shots ‘as soon as possible’ after they are given first to health workers and people who live and work in long-term-care facilities under current plans,” Amy Goldstein reports.
  • Wall Street sweats the return of a muscular CFPB: “The Trump administration has done its best to neuter the Consumer Financial Protection Bureau, giving large banks a reprieve from aggressive enforcement and new rules… Wall Street is worried it will be quickly resurrected,” Bloomberg's Robert Schmidt and Jesse Hamilton report. “Thanks to a U.S. Supreme Court decision earlier this year, Biden will be able to fire Kathy Kraninger, the watchdog’s Republican director, even though her term isn’t complete -- a move likely to happen in the weeks after the inauguration. The banking industry has reason to fear that a new chief will return the agency to its days of meting out stiff sanctions on lenders and credit card companies.”
  • NAACP president urges creation of racial justice post: “NAACP President Derrick Johnson, in a meeting [Tuesday] afternoon with Biden, pressed the president-elect to appoint a national adviser on racial justice and elevate the position to a prominent role in the administration,” Matt Viser reports.

Pocket change

Goldman Sachs moves to deepen China ties.

The investment bank has backed companies there for 25 years: “Goldman is moving to acquire 100 percent ownership of its securities joint venture in China … and has signed an agreement to acquire the 49 percent share of the venture it doesn’t own,” the WSJ's Jing Yang reports.

U.S. investment banks, asset managers and credit-card companies have long coveted a bigger presence in China but were held back for decades by ownership restrictions on financial businesses in the country. Wall Street has emerged as a big winner in the trade war between Washington and Beijing, after a pact signed in January promised greater access to China’s financial sector for American institutions.”

Top cybersecurity FireEye was hacked: “The company was breached in recent weeks, likely by state-sponsored hackers who stole valuable hacking tools that the company uses to detect weaknesses in customers’ computer networks, a FireEye executive said,” Ellen Nakashima and Joseph Marks report.

“The breach shows that even the most advanced cyber firms, which make a living protecting others against intrusions, can be hacked. The hack appears to be the work of the Russian SVR intelligence service … The firm went public with the incident to ensure that its 9,600-plus customers and the cybersecurity industry were aware and could take steps to ensure that they won’t be breached with the stolen tools. The tools are used by FireEye ‘red teams’ to test a company’s cyber defenses.”

Elon Musk is a Texan now: “Tesla's CEO said he has moved to the Lone Star state, taking aim at Silicon Valley and becoming one of the highest-profile executives yet to leave California during the pandemic,” the WSJ's Heather Somerville reports.

“He said relocating made sense with Tesla’s new factory being built in Texas. He lamented that California, in his view, had become complacent with its innovators … Taking up residence in Texas comes with personal benefits for Mr. Musk: The state doesn’t collect state income or capital-gains tax for individuals. The auto executive qualified this year for billions of dollars in stock-option compensation as part of a pay-package agreement, making him the second-richest person in the world.”

Boeing is still struggling: “The company lost another 63 orders in November for its newly un-grounded 737 Max jet, and the company delivered seven aircraft to customers, down from 24 in the same month a year ago, company data,” Reuters's Eric M. Johnson reports.

“The embattled U.S. planemaker had no 787 Dreamliner deliveries to customers last month, warning that inspections over quality flaws and the resurgent coronavirus will continue to hamper deliveries through year-end.” 

State, federal authorities expected to file antitrust lawsuits against Facebook on Wednesday (Tony Romm)

Daybook

Today:

Thursday:

  • The Labor Department reports weekly jobless claims
  • Costco, Dave & Buster's, Lululemon Athletica and Oracle are among the notable companies reporting their earnings
  • The Senate Small Business Committee holds a hearing on the future of PPP
  • A Senate Commerce Committee subcommittee holds a hearing on the logistics of vaccine distribution, featuring testimony from top FedEx and UPS officials 

The funnies

Bull session

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