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From Securities Regulation Daily, April 4, 2017

Clayton nomination advances to full Senate despite Democrats’ reservations over conflicts

By Brad Rosen, J.D.

The Senate Banking Committee voted 15-8 to approve the nomination of Jay Clayton, the Sullivan and Cromwell attorney selected by President Donald Trump to serve as the next Chairman of the Securities and Exchange Commission. The nomination will now proceed to the full Senate where confirmation is expected, and which according to reports, will occur by month’s end.

Notwithstanding, Mr. Clayton’s approval was mired in controversy and deep reservations expressed by certain Democratic members of the committee. According to prepared remarks by Sherrod Brown (D-Ohio), the committee’s ranking member, Mr. Clayton’s "deep ties to Wall Street will leave him hopelessly conflicted in the SEC’s most high profile enforcement actions." Senator Brown continued, "too often, we have seen big Wall Street banks commit one violation after another. The American people should not have to trust that one of Wall Street’s own will be able to hold big banks accountable."

The senator also pointed out that Mr. Clayton, in particular, will face conflicts in cases involving the biggest banks on Wall Street, if not the world, that he used to represent. Clayton had done significant legal work for Goldman Sachs and an assortment of other major financial firms and corporations.As a result Sherrod claimed, Clayton will be on the sidelines, unable to vote on some of the SEC’s most important cases. As a fundamental and philosophical matter, Brown asserted, "[o]ver 20 years at a Wall Street law firm makes you think a certain way. And that way usually doesn’t involve focusing on families saving for retirement".

Issues surrounding Mr. Clayton’s potential conflict of interests were also center stage during his testimony before the Banking Committee in March. Mr. Clayton assured lawmakers at that time that he would not show favoritism to Wall Street and would act only in the public interest. With respect to recusals, Clayton said he did not believe his prior legal work would impair his SEC duties. The nominee elaborated by saying that recusals would be manageable because the other commissioners could act in specific matters.

During his appearance before the Banking Committee in March, Mr. Clayton also indicated that the protection of investors is a fundamental responsibility that he would pursue with "energy and purpose" and warned there is "zero room for bad actors in our capital market." During his testimony, Clayton also focused extensively on capital formation and IPOs, two areas he focused on in private practice.

While Mr. Clayton may have his share of detractors from the Democrat side of the aisle, he also has avid supporters from the ranks of Republicans and those in the industry. His colleagues, Ralph Ferrara and Ann Ashton, from Proskauer Rose, recently described Clayton as a "power puncher" and remarked, "[t]he Commission drew the long straw with Clayton. He is a capital markets expert whose core competency lies comfortably with the Securities Act of 1933 and its sister, the Securities and Exchange Act." They posit that he will likely focus on "regulatory reform" at an SEC where reform is "ripe for the picking". This of course is in line with President Trump's repeated pledges to ease many the regulatory burdens that have accrued over the years and to spur capital formation. Whether Mr. Clayton achieves these ends, only time will tell.

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