Evan Vucci/AP Photo
Gensler during his time as Commodity Futures Trading Commission chairman in 2010
Progressives were elated when President Biden appointed Gary Gensler to chair the Securities and Exchange Commission. Though Gensler had been at Goldman Sachs before chairing the Commodity Futures Trading Commission under President Obama, he turned out to be the best sort of class traitor—someone who knew the insider games well enough to be disgusted by them and be a tough regulator. He was so effective, in fact, that he regularly tangled with Obama’s top aides and their Wall Street allies.
But in his first major move as SEC chair, Gensler made an unforced error that left his admirers wondering about both Gensler’s judgment and his spine. On April 22, Gensler appointed as his director of enforcement Alex Oh, a 20-year partner at Paul, Weiss, one of the leading power law firms that serves Fortune 500 companies accused of violating SEC laws and rules. Worse, Oh represented large multinationals such as UBS, Bank of America, Pfizer, and Merck in product liability and fraud cases.
There was nothing in Oh’s recent history to suggest that she was poised to become a Gensler-style turncoat, using her insider knowledge to serve the public interest. On the contrary, the appointment was cheered on Wall Street.
At the SEC, the enforcement division has some 1,300 people and is one of five main operating divisions, each of which are fiefdoms with immense power to set priorities in bringing or settling cases. Of all the possible enforcement directors to appoint, why Alex Oh?
Gensler’s challenge now is to reassure progressives by appointing people from outside the Wall Street orbit to the remaining top SEC staff jobs.
The progressive pushback was fierce. Leading senators, such as Elizabeth Warren who had pressed Biden to appoint Gensler to the SEC post,were appalled. Three progressive groups, Demand Progress, the Revolving Door Project, and the Progressive Change Campaign Committee, sent Gensler a letter citing Oh’s longtime work defending people and companies charged with SEC violations and requesting him to withdraw the appointment.
But worse was yet to come. On Wednesday, Oh abruptly resigned, after a federal judge, Royce Lamberth, cited complaints by lawyers for Indonesian villagers suing ExxonMobil for extensive human rights violations committed by private security in its employ. The judge admonished Oh for unprofessional conduct in her dealings with the plaintiffs’ attorneys, and ordered her to appear to explain why she should not be sanctioned.
Specifically, in a February 14 deposition in the case, an Exxon lawyer named Mark Snell literally read his answers from a script that he kept just out of camera view. Plaintiffs’ attorneys eventually got a hold of that script, and it exactly matched the answers. Snell obstructed plaintiffs’ attempts to get information, pausing for several minutes to answer questions and generally frustrating the process. The plaintiffs claimed this activity was “preplanned and actively assisted” by Oh and the other Exxon attorneys, who continually objected to the questioning.
Admirers of Gensler concluded that he had dodged a bullet. With Oh’s resignation, the immediate brouhaha would go away. And in the aftermath, a chastened Gensler would be more likely to appoint non–Wall Street people from the ranks of prosecutors, state securities regulators, law school experts, plaintiffs’ attorneys, and the SEC’s own career staff to the commission’s top posts.
Maybe he will. But the Oh affair raises other disturbing questions.
For starters, how could a lawyer with a pending ethics complaint have survived the vetting process? Shouldn’t she have disclosed it herself, as a potential embarrassment to Gensler and the commission?
A source at the SEC close to Gensler told me that lawyers’ complaints and counter- complaints happen all the time, and this one was not a big deal until the judge’s ruling. However, The Wall Street Journal quotes Brad Bennett, former head of enforcement for the Financial Industry Regulatory Authority, that the best practice is for a prospective appointee “to disclose during the interview process and background check anything that could be potentially embarrassing to the agency.” And again, the offending deposition, the source of the complaint, happened in mid-February.
Even more curious is the question of how Oh’s resume rose to the top of the pile.
I’m told by the same SEC source that potential candidates for the job were suggested to Gensler by a variety of people, including from the White House. But obviously, a “suggestion” from the White House carries more weight than others.
I asked the White House press office which candidates had been suggested to Gensler, and have not received a response. I have no hard information on who might have suggested which candidate, but one possible suspect is the managing director of Paul, Weiss, a power-lawyer named Brad Karp. As the Prospect revealed in a piece last year, Karp has been a major fundraiser and bundler of other donations from Wall Street, first for Kamala Harris, and then for the Biden-Harris ticket.
When Oh resigned her post Wednesday, Karp was quick to put out a statement describing her as “a person of the utmost integrity and a consummate professional.”
As recently as yesterday, Gensler was said to be defending the Oh appointment, and somewhat mystified at the fuss. What’s odd is that as part of his own senior office staff, Gensler has appointed well informed critics of Wall Street and of weak SEC enforcement, such as Heather Slavkin Corzo, the AFL-CIO’s longtime expert on capital markets, as his policy director.
It may be that Gensler hopes to reassure Wall Street and its allies in the White House by offsetting his own reputation as a tough regulator with safe and tame appointees to top SEC staff posts. If so, that strategy just got a lot harder.
His challenge now is to reassure progressives by appointing people from outside the Wall Street orbit to the remaining top SEC staff jobs. These include a permanent replacement for Alex Oh at the Enforcement Division, as well as the other top posts such as directors of Trading and Markets, Investment Management, Corporation Finance, Economic and Risk Analysis, as well as general counsel.
Gensler settled for the SEC job as his second or third choice. He was hoping to be Treasury Secretary or the top deputy. If he still harbors those ambitions, that straddle also just got a lot harder. Gensler could be a great SEC chairman, at a time when Wall Street has been pillaging the economy with impunity for decades and a president is committed to reform. He chairs a powerful, independent regulatory commission that has been dormant and toothless for far too long. If he tempers his mission with concerns about reassuring Wall Street or the White House staff, he will miss his moment.
