The Senate on Tuesday confirmed Jay Clayton to be chairman of the SEC, infusing the stock market regulator with new leadership that will likely back away from strict enforcement on Wall Street.
In a 61-37 vote, eight Senate Democrats and independent Angus King of Maine joined with Republicans to confirm Clayton, despite Sen. Elizabeth Warren’s pleas to her colleagues to oppose him.
Story Continued Below
Many of Clayton’s clients at New York law firm Sullivan & Cromwell were Wall Street firms, and Warren said he will not be able to participate in enforcement cases involving these companies for the first two years of his SEC term.
Confirming Clayton "will only certainly result in weaker enforcement against the major players on Wall Street," the Massachusetts Democrat said before the vote.
Though Clayton has identified himself as an independent, he is expected to align himself with Republicans and steer the SEC away from an enforcement agenda that the agency has pursued since the 2008 financial crisis.
“Republicans are going to be less aggressive on the fines, given their public statements,” said Fraser Hunter, a partner at law firm WilmerHale, who worked with Clayton at Sullivan & Cromwell. “The Republicans will be more focused on capital formation and on rulemaking that frees up capital formation.”
Described as a low-key consensus-builder and not a bomb thrower, Clayton is not expected to be as hostile toward the regulator that he leads as some of President Donald Trump’s other picks like Scott Pruitt, head of the EPA. Still, it’s unclear what SEC issues the new chairman will emphasize first.
"It is a distinct honor to be confirmed by the US Senate as the Chairman of the SEC," Clayton said in a statement. "I look forward to working closely with my fellow commissioners and the dedicated career staff at the SEC to serve the American public and advance the SEC’s important mission.”
The agency has a huge portfolio ranging from oversight of the stock markets to the accounting industry. Clayton’s first task will be to hire people to fill top roles at the SEC such as enforcement director. Most of the senior executives left the agency when former Chair Mary Jo White, a onetime prosecutor, stepped down in January.
In the near term, Clayton might not be able to accomplish much that Democrats do not like. Due to the quorum rule at the SEC, three commissioners need to be present to advance rules or enforcement actions. The agency currently only has three commissioners, rather than the usual five. So, if Democrat Kara Stein is up for a fight, she can simply refuse to participate and deny Clayton a quorum.
Down the road, Trump is likely to appoint additional SEC commissioners, and that could cause a confrontation with Democrats such as Warren. The law says the SEC can have no more than three commissioners from the same party. If Clayton is listed as an independent, then Trump could fill the SEC’s two vacancies with Republican nominees. Stein’s term expires in June, though she can continue to serve until December 2018.
Sen. Sherrod Brown (D-Ohio) called on Trump to appoint another Democrat to the SEC, "which really he is supposed to do, but hasn’t seemed to have gotten around to it.”
Warren used Clayton’s confirmation as another opportunity to accuse Trump of duplicity after he campaigned so heavily against Wall Street during the presidential race.
"His nomination is just one more broken promise, one more time that Donald Trump has put Wall Street ahead of the interests of the American people," she said.