Wednesday, May 24, 2017

Conflicts of Interest and the Public Trust

Umpires and referees are hired to impartially officiate their respective games, enforce the rules and ensure fair play. The credence of these officials builds public trust and protects the integrity of the games. Everyone complains that the ump or the ref got the call wrong, but seldom, if ever, does anyone suspect a conflict of interest or believe these officials received payments from players, managers or owners of the teams. If these officials weren’t trustworthy, it would shake the confidence and probity of sports to its core. It would demoralize fans and destroy the games. Billions would be lost by everyone involved with sports. It’s imperative for the very life of the games that these officials maintain honesty and integrity and avoid even the appearance of conflicts of interest. Appearances matter.

If appearances do matter, why then are officials nominated and confirmed to officiate a $23 trillion game? Jay Clayton, a longtime partner at the law firm Sullivan & Cromwell, is the latest nominee to lead the Securities and Exchange Commission. Clayton follows many other SEC heads with multiple intertwined conflicts of interest that bring impartiality into question in regulating Wall Street. Clayton has represented big banks like Goldman Sachs and Barclays as well as prominent hedge funds, corporate executives and numerous companies facing intense government scrutiny. Clayton’s numerous conflicts of interest, intertwined investments and problematic clients were recently chronicled in the New York Times article, Trump’s S.E.C. Nominee Disclosure Offers Rare Glimpse of Clients and Conflicts (

There is no doubt that Clayton is highly experienced and possesses an expansive understanding of market machinations. His knowledge and experience are necessary to rise to the task of running a complex government agency that regulates a complex business that utilizes complex instruments. From inception the SEC has had leadership conflicts of interest.

In 1934, Franklin Roosevelt appointed Joseph Kennedy to head the newly created Securities and Exchange Commission. FDR viewed the SEC as a part of the national recovery from the Great Depression and believed Kennedy was an ideal candidate to rein in all those other Wall Street charlatans. Through experience, Kennedy knew all the fraudulent, questionable backroom ways of lining the pockets of finance’s fat cats, and many believed the fox had been appointed chairman of the hen house. During his two years as SEC chairman, Kennedy stopped many dishonest activities and closed as many loopholes as he could, but his real mission was to make corporations feel good again about doing business. Corporations didn’t trust FDR and the New Deal, but Joe Kennedy was one of them.

Just maybe the game is rigged to promote business. The stated mission of the SEC is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. The SEC also states that it strives to promote a market environment that is worthy of the public’s trust. With the current and historic appointments made to the SEC and the glaring history of conflicts of interest, it’s obvious that the SEC isn’t promoting an environment worthy of the public’s trust. The SEC is promoting an environment worthy of only the corporations’ trust.

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