Senate panel presses SEC candidate Clayton on conflict

© Reuters. Clayton testifies at a Senate Committee on Banking, Housing and Urban Affairs hearing on his nomination to be chairman of the Securities and Exchange Commission (SEC) on Capitol Hill in Washington.

By Sarah N. Lynch and Lisa Lambert

WASHINGTON (Reuters) – Jay Clayton, the Wall Street lawyer appointed by President Donald Trump to head the U.S. Securities and Exchange Commission, defended himself Thursday against accusations by Democrats that multiple conflicts of interest would force him to lose too many SEC votes.

Clayton, a partner at the elite law firm Sullivan & Cromwell, is expected to get confirmation easily, though some Senate Banking Committee Democrats raised concerns about his ties to Wall Street and Goldman Sachs (NYSE :), a bank to which represented during the financial period. crisis and employing his wife, Gretchen.

His wife plans to resign from the bank if Clayton is confirmed, and said he will abstain from matters involving his clients or those of the firm for two years.

Some clients include Barclays (LON :), Deutsche Bank (DE :), Bill Ackman’s hedge fund Pershing Square (NYSE 🙂 Capital Management, and former Ocwen Financial Corp CEO William Erbey.

Clayton told the panel that his legal experience on Wall Street is a “strength,” adding that he does not believe conflicts of interest present problems in leading the agency that enforces securities laws and regulates the stock, options and bond markets. from the United States.

“As for the scope of my practice and whether the challenges that would be required for potential conflicts will affect my ability to serve as chairman of the Securities and Exchange Commission, I don’t think they will,” he said.

Clayton, an independent politician, told the committee that the Dodd-Frank financial reform law should be “reviewed” to determine if it has achieved its goals.

When pressed on certain parts of the law, such as whether the SEC should delay implementing a rule that requires companies to disclose the ratio of CEO pay to median worker pay, Clayton refused to meddle. in the debate until I could get more information from the SEC. personal.

In their questioning, Republicans led by panel chair Mike Crapo of Idaho said the SEC should help make it easier for companies to raise money, a goal the Trump administration has embraced.

Clayton said SEC regulations should be clear and simple, saying complexity creates confusion.

Companies are taking longer to go public and compliance costs are an impediment, he said, but he did not offer political solutions to the problem.

During the hearing, Democrats, including Sherrod Brown of Ohio and Elizabeth Warren of Massachusetts, repeatedly said that Clayton’s relationships on Wall Street are a concern.

“At today’s confirmation hearing for Jay Clayton, the issue of conflicts of interest was the skunk at the party,” said Lisa Gilbert, vice president of legislative affairs for Public Citizen, which has criticized Clayton’s ties to Wall Street.

Clayton’s potential challenges could be significant because the commission currently only has two sitting members: Democrat Kara Stein and Republican Michael Piwowar. If Clayton recuses and the remaining two do not agree, any action before the commission will fail. He stressed that he does not see this as a major concern because the majority of the implementing votes are “unanimous.”

Clayton also said he strongly believes in holding people accountable for wrongdoing, adding that it could be a greater deterrent than targeting corporations.

The SEC only has civil jurisdiction and cannot bring criminal action.

Democrats also questioned whether Clayton is willing to take on Trump and his appointees.

Warren pointed to billionaire investor Carl Icahn, who is advising Trump on regulation, and asked Clayton about Icahn using his high-profile role to boost his own investments.

Icahn has a majority stake in a refinery that could benefit from a proposed change to the US biofuel program and a 24.57 percent stake in Herbalife (NYSE 🙂 Ltd, which is under investigation for violations of the Foreign Corrupt Practices Act.

Clayton acknowledged that he met with Icahn after he was nominated to discuss the role of activist investors, but was careful not to judge Icahn’s roles as an investor and adviser to the White House.

Violations of insider trading laws generally involve “an analysis of facts and circumstances,” he said.

Current and former SEC staff have told Reuters they are confident Clayton will be a strong SEC chairman.

Former Republican SEC Commissioner Daniel Gallagher, who has known Clayton since the financial crisis, attended the hearing Thursday and gave him high marks.

“His behavior is a perfect fit for an SEC chairman,” he said.