Commissioner’s Exit Would Leave the SEC Without a Democrat

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The Securities and Exchange Commission in Washington

Securities and Exchange Commissioner Robert Jackson might be leaving office in the coming months—well before he would be required to by law. The public was first made aware of this possibility when his name showed up on a list of people who would be teaching courses at NYU Law School this fall. Remarkably, Jackson has not issued a statement clarifying the situation and making it known if or when he plans to depart—and whether he might leave the SEC with just one, or even zero, Democratic commissioners.

But one thing is clear: Abandoning his office at this time would be a gift to Wall Street and a betrayal of activists who helped him get where he is.

Senate Democrats and progressive activists are in an ongoing tug-of-war with President Trump to maintain a long-standing norm: that the party that is not the president’s gets to choose commissioners for powerful agencies like the SEC and Federal Deposit Insurance Corporation.

The statutes that create these bodies generally include language along these lines. For instance, from the law that created the SEC: “Not more than three of such commissioners shall be members of the same political party.”

By tradition, three members of the president’s party and two members of the opposite party are typically installed; those minority party commissioners are de facto chosen by the Senate leader of the party opposite the president’s, with the president then formalizing those choices and nominating them for office. That’s why, for instance, one encounters circumstances like that of the Federal Communications Commission where Ajit Pai—nominally a 2012 Obama appointee, but really chosen by Mitch McConnell—is leading efforts to roll back Obama priorities, such as his signature net neutrality rule.

Democrats have been unable to secure the installation of a full complement of minority party commissioners at either the SEC or FDIC. Jackson was sworn in at the SEC in early 2018, but the second Democratic seat has been vacant since the beginning of this year when Kara Stein’s term ended—even though Chuck Schumer presented his preferred choice, Allison Lee, to Trump last summer. Lee was not formally nominated until April.

Traditionally, these nominations are paired: votes for one Republican and one Democrat happen concurrently, giving the entire Senate a reason to confirm. But Schumer dithered on the Lee recommendation, and Republicans took advantage of the delay to confirm conservative stalwart Elad Roisman. Lee has waited in limbo ever since.

Meanwhile, at the FDIC, no Democrats have been nominated—again, despite Schumer having made his choices known in 2018. Commissioner Martin Gruenberg is continuing to serve on a term that expired late last year. The other Democratic seat has been vacant since 2015, even though Schumer identified former Senate staffer Graham Steele for that seat last fall. Trump has not yet formally nominated either.

The imbalance at the FDIC comes at a critical moment, as the Trump administration seeks to undercut Dodd-Frank and enable mergers, including considering rolling back the anti-redlining Community Reinvestment Act and allowing the biggest bank merger since the financial crisis.

Though Jackson’s term technically expires June 5, he is allowed by law to stay at the SEC until the end of 2020. Were he to depart in the midst of the present impasse, he would leave Democrats shorthanded indefinitely, subject to the vicissitudes of the Trump administration. This is all the more troubling because of the work that it took to get Jackson—a relative progressive—in place to begin with. Organizations like Demand Progress and the Revolving Door Project, where we work, spent years working alongside Elizabeth Warren to ensure that corporate-aligned Democrats were prevented from taking the seat, even as the relatively bank-friendly Obama administration sought to install them. If not for our work, Jackson would not have had the opportunity to serve to begin with. His departure would compel activist groups and senators to spend precious political capital on a seat that we thought was in good hands until next year.

We need Jackson in place as the Trump administration seeks to unwind a variety of post-crash financial regulations and attacks the rights of shareholders to help steer corporate governance.

Moreover, without Jackson in office—with a 3-0 or even a 3-1 SEC—enforcement against lawbreakers will be next to impossible. Just weeks ago, five Debevoise & Plimpton partners wrote an article crowing about the likelihood that there would be no meaningful enforcement at the SEC for the remainder of Trump’s term because the two rank-and-file Republicans on the commission oppose essentially all penalties. The SEC chair, registered independent Jay Clayton, apparently cares just enough about maintaining a semblance of legitimacy for the commission he is meant to steward that he sometimes votes with Democrats to enforce penalties. Without a second Democrat on the commission this is no longer an option. Lee’s installation would solve this—but only if Jackson remains.

To be sure, Jackson’s looming departure should motivate Schumer to get a nominee recommended early, to avoid a situation like Allison Lee’s. But if Republicans remain determined to break precedent and prevent nominations of Democratic commissioners to come to the floor, then Jackson’s spot is critical—and his leaving would be a disaster.

A seat on the SEC should not be treated like an academic sabbatical, but a sacred trust. Jackson knows an early departure without a confirmed successor to his seat would be a boon to venal Wall Street firms while undercutting the activists and politicians who helped him achieve his high public office. It would disqualify him for future consideration for similar high public office.

Alternatively, if Jackson stays on until there are two Democrats confirmed to the commission, or until the end of 2020 (when he would be forced to leave regardless), he would have affirmed his appreciation for the importance of public service. He would also be able to continue to distinguish himself for good work, for instance his efforts to promote greater regulation of stock buybacks. Such a demonstration would be long remembered in progressive circles.

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