What Makes a Regulator Marketable?

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If you're an enforcement lawyer at a regulatory agency, how should you position yourself to jump to a top-tier bank? Notch up high-profile, successful cases that make life tough for your future Wall Street bosses.... or curry favor with them by looking the other way and keeping your head down?

Michael Lewis and David Einhorn say it's number two. But more-credible authorities say it's number one.

In a pair of related essays in last Sunday's New York Times, Lewis (a widely admired Wall Street author) and Einhorn (best known as the hedgie who brought down Lehman Brothers) contend that dollar signs in their eyes blinded SEC staffers to their duty to prevent Wall Street from jacking up short-term profits at the expense of fiscal soundness.

Blame It On the Revolving Door?

Those co-authored opinion pieces are sparking a buzz across the blogosphere. Left-leaning pundits and populist bloggers, in particular, were quick to hail the Lewis/Einhorn analysis and prescriptions - which include barring regulators, "for some meaningful amount of time after they have left the S.E.C., from accepting high-paying jobs with Wall Street firms."

Not so fast, say legal experts whose direct knowledge and experience in this area clearly trumps that of Lewis and Einhorn.

Experts such as Bruce Carton, a former senior counsel in the SEC's Division of Enforcement and current editor of Securities Docket, an online publication that tracks securities litigation and enforcement developments on a global basis.

"In my experience at the SEC, the incentives seemed to be the opposite of what (Lewis and Einhorn) describe," writes Carton in a recent column in Compliance Week. "That is, there was a common desire among the go-getters at the SEC's Division of Enforcement to try to get on the big, high-profile, high-impact cases so as to build one's credentials and resume. If you look at the press releases for people hired out of the SEC to the private sector, they invariably state something like, 'Mr. Jones played a significant role in the case against WorldCom.' They do not say, 'Mr. Jones successfully did nothing in his 5 years at the SEC and did not roil the markets.'"

Firms Value 'High-Impact Resumes'

Likewise, the top-drawer law firms to which many former SEC enforcement lawyers move "value high-impact resumes for their own marketing purposes," Carton adds.

A similar view comes from David Zaring, an assistant professor of legal studies and business ethics at Wharton who has taught law at NYU, Vanderbilt and Washington & Lee University and worked in the Justice Department and the Department of Housing and Urban Development.

On a blog called "The Conglomerate," Zaring writes: "I suspect that financial crimes prosecutors who bring big cases against big defendants make much more money when they go into private practice than do prosecutors who bring no cases against no defendants. The revolving door would suggest otherwise, but would you, an ambitious young bureaucrat who secretly really wants to make money rather have been put on the Enron team or the Dynegy team? I'd recommend the former."

(Hat tip to Am Law Litigation Daily.)

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