Turmoil for SEC, SDNY Leadership

Compliance professionals awoke this weekend to news that two of the country’s most important corporate prosecutors — the Securities and Exchange Commission and the U.S. Attorney for the Southern District of New York — are mired in confusion and uncertainty about who’s going to be in charge. 

While you were Netflix and chillin’ on Friday night, attorney general William Barr announced that President Trump plans to nominate SEC chairman Jay Clayton to be the next U.S. attorney for the Southern District of New York. This is the district that includes Manhattan, so it prosecutes all manner of corporate and white-collar crime. 

[UPDATE: Sen. Lindsay Graham, chair of the Senate Judiciary Committee, said Saturday morning that he will defer to whatever the senators from New York, Sens. Charles Schumer and Kristen Gillibrand, want to do — and they want Clayton to withdraw. So whatever Barr was trying to do here, his caper now seems dead on arrival. I would not be surprised if Clayton didn’t know this was coming and no longer wants any part of it either.]

Jay Clayton


In theory, Clayton would replace current U.S. attorney Geoffrey Berman, who has been in that role since 2017. Berman first served as interim U.S. attorney, appointed by then-attorney general Jeff Sessions. When Trump never got around to nominating Berman formally, Berman’s appointment was made permanent in 2018 by the chief judge of the Southern District. (This bit of history will be important, I promise.) 

Here’s where everything gets nuts: in his announcement on Friday, Barr also said Berman was stepping down from the U.S. attorney’s job immediately and would be replaced on an interim basis by fellow U.S. attorney Craig Carpenito in New Jersey — except Berman isn’t leaving!

Instead, Berman published his own Friday night statement, where he declared that he has not resigned and will remain in office until the Senate confirms a presidentially nominated successor. 

Even crazier: because Berman was never formally appointed by Trump and confirmed by the Senate, but rather confirmed by judicial imprimatur, it isn’t clear that Barr has the legal authority to fire Berman now

For example, Berman could challenge Carpenito’s interim appointment in court, or insist that the Southern District chief judge must approve that appointment. Only a successor appointed by the president and confirmed by the Senate would clearly force Berman off the stage. 

Which brings us back to Clayton, perched at the SEC since 2017. When the Wall Street Journal reached him for comment Friday night, Clayton only said that he remains, “pending confirmation, fully committed to my job at the commission.” Excellent way to keep your head down, Mr. Chairman.

As of Saturday morning, the White House list of nominations and appointments had no mention of Clayon nominated to the U.S. attorney job yet. 

Questions, Questions

What is this really about? This is really about Barr trying to exert more control over investigations that might be politically damaging to President Trump. Because the Trump Organization and the Trump 2016 presidential campaign are both based in New York, they’re in the Southern District of New York jurisdiction. Barr wants a crony in that office so he can steer the investigations toward politically advantageous ends. 

For example, Berman’s office has been investigating Rudy Giuliani and already indicted two of Giuliani’s business associates for helping the Trump Administration to pressure Ukraine officials to investigate Joe Biden. Berman also secured the conviction of Michael Cohen, Trump’s former personal attorney, for helping Trump to funnel $130,000 in hush money to porn star Stormy Daniels. 

Trump was an unindicted co-conspirator in the Cohen case. So a new U.S. attorney could, for example, re-open that case and move to vacate Cohen’s conviction — letting Individual 1 elude future prosecution, should he fail to win a second term in November. 


In both cases, Barr — who only arrived as attorney general in early 2019 — has expressed doubts about the original theories of those cases. Barr has also done the same with the case against Michael Flynn, Trump’s former national security adviser who pleaded guilty to lying to prosecutors about his dealings with Russia. Barr tried to drop that case even after Flynn pleaded guilty twice. 

Let’s also remember that the Senate Judiciary Committee, controlled by Republicans, recently voted to start issuing subpoenas to investigate the Obama Administration. Senate Republicans could gin up frivolous investigations and then turn them over to new prosecutors more ready to do Trump’s political bidding. 

You see the bigger picture here. Barr wants to install a more politically correct prosecutor in the Southern District of New York. 

So, wait — Jay Clayton would be that prosecutor? I don’t know, but right now that is the least of Trump’s and Barr’s concerns. Senate confirmation of Clayton’s appointment would take weeks at least, if not months. They need to get Berman out of office immediately because there’s an election coming, and right now Trump isn’t doing well. 

For all we know, an indictment of Giuliani was imminent; or some other investigation against some crony or political ally of Trump was about to become public; or Trump needs to gin up an investigation into his political enemies as a distraction. So the urgency was to get Berman out more than to get Clayton in.

It is true that Clayton has no experience as a prosecutor; he spent his career as a corporate lawyer at Sullivan & Cromwell. His experience there would serve him well to understand corporate misconduct that comes before the prosecutor’s office, but that’s no substitute for experience as an actual prosecutor. 

Then again, Clayton has been more independent as SEC chairman than some Republicans would have liked. Sure, his tenure has focused more on retail investors than on corporate crime — but enforcement against Wall Street never flat-lined like cynics expected when Clayton arrived in 2017. Plus, he is a Republican, after all; he was never going to be truly tough on corporate crime. 

Barr has reportedly been working to put together this plan for a while. Clayton wanted to leave the SEC at the end of this year, and had been interested in the SDNY prosecutor job; and for whatever reason, Barr decided to pull the trigger now. Then again, this could all be further proof of my pet theory that Barr isnt the diabolical genius people believe he is; maybe hes just another political bumbler all too common in the Trump Administration.

What happens to the SEC if Clayton leaves? My bet is that Trump will name Hester Peirce, a GOP appointee who has been on the commission since January 2018, as acting chairman. 

After all, if Trump were to nominate a permanent new chairman, who miraculously gets confirmed by the Senate in a speedy fashion, that person could still be out of a job by next January if Trump loses. So smart candidates wouldn’t want to take that career risk. 


That risk is just as true for Peirce if she were named permanent chair; she’d be unemployed under a Democratic administration. So the smart move is to name her (or fellow Republican Elad Roisman, although he’s been a commissioner for less time) as acting chairman, and leave the commission with only four commissioners rather than the full complement of five. If Trump wins another term, he can name a permanent chair. If he loses, Peirce or Roisman go back to their regular seats and keep their jobs. 

It’s also worth noting that Trump just nominated Peirce for a second term as SEC commissioner, and also nominated Caroline Crenshaw to fill a vacant Democratic seat.

On a daily basis, all of this probably means not much for corporations dealing with the SEC right now. You still have quarterly reports and 8-K disclosures to file, SEC comment letters to answer, and investigations driving up your legal spend. All those things will continue apace. 

In theory this leadership turmoil could pause or change SEC policy-making, although in reality Covid-19 has already done that for policy-making anyway. So pull up the popcorn, find a good seat, and enjoy the spectacle.

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