Reforming the SEC: Turnover at the Top

All of the heads of the SEC's operating divisions have changed either shortly before or shortly after the arrival of Mary Schapiro.  That in fact is not a particularly unusual phenomena at the Commission.  Those running the Divisions use the change in supervisor as a catalyst to move on, usually into the private sector.  At the same time, the new chair benefits from the ability to put in place his or her own appointments.

Nonetheless, the process this time around suggests that it was influenced considerably by the current raft of problems besetting the Commission.  This can be seen not from the existence of vacancies but from the nature of the replacements.  Thus, for example, the new director of the Division of Corporation Finance, a Division not implicated to any significant degree by the Madoff scandal or the inspection failures in connection with the investment banking firms, Meredith Cross, came out of the private sector (WilmerHale) but had been in the Division during the 1990s, climbing to the rank of Deputy Director.  In short, she knew the Division and the Division staff knew her.

Contrast this with the situation at the Division of Enforcement.  The new Division Director is Robert Khuzami.  Although most immediately hailing out of Deutsche Bank, his governmental service was in the securities fraud unit of the US Attorneys Office in the Southern District.  His direct government experience, therefore, was not in the Commission but on the criminal side.  Indeed, Khuzami is only the second director in the history of the Division of Enforcement to have no internal Division experience (John Fedders was the other).   

Moreover, the same phenomena was duplicated in connection with other positions within the Division.  The head of the New York Office, one of the places that investigated Madoff but failed to detect the Ponzi scheme, saw the appointment of George Canellos, a criminal prosecutor from the US Attorneys Office in the Southern District.  Similarly, the new Deputy Director of the Division, Lorin Reisner, also served in the US Attorneys Office and had no direct Commission experience. 

The appointments presumably sent a message that tough enforcement would be the order of the day.  They also suggested that the status quo would no longer be acceptable, that reform was coming.  But to those following the Agency (past and present members), there could be little doubt of another unmistakeable message.  The appointments deliberately passed over all present and former members of the Division.  It was a form of collective blame.