Obama puts fox in charge of hen house at SEC

Matt Taibbi writes: I was shocked when I heard that Mary Jo White, a former U.S. Attorney and a partner for the white-shoe Wall Street defense firm Debevoise and Plimpton, had been named the new head of the SEC.

I thought to myself: Couldn’t they have found someone who wasn’t a key figure in one of the most notorious scandals to hit the SEC in the past two decades? And couldn’t they have found someone who isn’t a perfect symbol of the revolving-door culture under which regulators go soft on suspected Wall Street criminals, knowing they have million-dollar jobs waiting for them at hotshot defense firms as long as they play nice with the banks while still in office?

I’ll leave it to others to chronicle the other highlights and lowlights of Mary Jo White’s career, and focus only on the one incident I know very well: her role in the squelching of then-SEC investigator Gary Aguirre’s investigation into an insider trading incident involving future Morgan Stanley CEO John Mack. While representing Morgan Stanley at Debevoise and Plimpton, White played a key role in this inexcusable episode.

As I explained a few years ago in my story, “Why Isn’t Wall Street in Jail?”: The attorney Aguirre joined the SEC in 2004, and two days into his job was asked to look into reports of suspicious trading activity involving a hedge fund called Pequot Capital, and specifically its megastar trader, Art Samberg. Samberg had made suspiciously prescient trades ahead of the acquisition of a firm called Heller Financial by General Electric, pocketing about $18 million in a period of weeks by buying up Heller shares before the merger, among other things.

“It was as if Art Samberg woke up one morning and a voice from the heavens told him to start buying Heller,” Aguirre recalled. “And he wasn’t just buying shares – there were some days when he was trying to buy three times as many shares as were being traded that day.”

Aguirre did some digging and found that Samberg had been in contact with his old friend John Mack before making those trades. Mack had just stepped down as president of Morgan Stanley and had just flown to Switzerland, where he’d interviewed for a top job at Credit Suisse First Boston, the company that happened to be the investment banker for . . . Heller Financial.

Now, Mack had been on Samberg’s case to cut him in on a deal involving a spinoff of Lucent. “Mack is busting my chops” to let him in on the Lucent deal, Samberg told a co-worker.

So when Mack returned from Switzerland, he called Samberg. Samberg, having done no other research on Heller Financial, suddenly decided to buy every Heller share in sight. Then he cut Mack into the Lucent deal, a favor that was worth $10 million to Mack.

Aguirre thought there was clear reason to investigate the matter further and pressed the SEC for permission to interview Mack. Not arrest the man, mind you, or hand him over to the CIA for rendition to Egypt, but merely to interview the guy. He was denied, his boss telling him that Mack had “powerful political connections” (Mack was a fundraising Ranger for President Bush).

But that wasn’t all. Morgan Stanley, which by then was thinking of bringing Mack back as CEO, started trying to backdoor Aguirre and scuttle his investigation by going over his head. Who was doing that exactly? Mary Jo White. [Continue reading…]

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