Feb. 19, 2017 7:00 a.m. ET
In late November, Jay Clayton was called by a longtime client seeking advice for how the Trump administration should tackle scaling back rules on Wall Street.
Mr. Clayton, a partner at Sullivan & Cromwell LLP who has represented Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc., dashed off an email explaining how government could promote growth by easing what he considered unnecessary regulations on raising capital, according to a person familiar with the matter. The correspondence was shared with Trump advisers, who were impressed and asked if there might be a position that would interest him. Mr. Clayton replied: “SEC chairman.”
Shortly after a late-December meeting with then-President-elect Donald Trump in Mar-a-Lago, Fla., he was offered the job.
Through his memo and subsequent meetings, the person said, Mr. Clayton assured the Trump team he shared their fear that public markets have become much less attractive than private fundraising channels, including mutual funds that pour millions into startups that are far from going public.
He “gets big corporations and the need for raising capital,” said Robert Evans III, a partner at Shearman & Sterling LLP who has known Mr. Clayton through legal circles. “It’s a welcome change from having somebody with an enforcement bent running the commission.”
Mr. Clayton would replace Mary Jo White, a former U.S. attorney chosen by President Barack Obama for her reputation as an aggressive prosecutor. By comparison, Mr. Clayton, a lawyer who has guided dozens of firms through stock sales and mergers, has written that federal foreign-bribery investigations unfairly shackle U.S. companies in their pursuit of growth overseas.
Mr. Clayton, 50, is expected to testify as soon as March 2 before the Senate Banking Committee, which must advance his nomination to the full Senate. Democrats, including Sen. Sherrod Brown, of Ohio, the panel’s ranking member, have said they are skeptical that a lawyer with career ties to Wall Street will share their desire for tough enforcement deals and strict rules intended to prevent another credit crisis.
Mr. Clayton’s wife, Gretchen Butler Clayton, has worked at Goldman Sachs since February 2000, though she plans to resign if the Senate confirms her husband, according to a person familiar with the matter. A financial adviser to wealthy households and high net-worth individuals, she also plans to sell stock she owns in the firm if Mr. Clayton is confirmed, the person said.
A big question facing Mr. Clayton is his stance on the 2010 Dodd-Frank financial overhaul law that aimed to rein in bank risk-taking after the financial crisis. Even if Republicans in Congress don’t succeed in their goal of repealing major sections of Dodd-Frank, the deliberations would provide Mr. Clayton with enough political cover to pursue other priorities such as easing corporate disclosure requirements. The agency’s acting chairman, Republican Michael Piwowar, already has frozen action on unfinished Dodd-Frank rules.
Mr. Clayton worries that certain rules, including some from the congressional response to the Enron Inc. accounting scandal, have become too burdensome for small companies trying to raise capital, according to a person familiar with his thinking.
“He’s very practical,” said Richard Truesdell, a partner at Davis Polk & Wardwell LLP, who joins Mr. Clayton at an exclusive monthly dinner club of top Wall Street lawyers to compare notes on legal issues. “The key insight that Jay can bring is, in the real world, what is the impact?”
Mr. Clayton has spoken with friends about what they call the “Tom Wolfe theory of contagion risk management,” a reference to “The Bonfire of the Vanities,” a novel in which a chain of tragic and life-altering events emanate from one character’s fateful decision. He also has discussed “Antifragile,” a book by Nassim Taleb that argues companies and individuals should learn to withstand volatility and unexpected shocks, said David Lawrence, a former Goldman Sachs executive who is a friend of Mr. Clayton’s.
Those themes help explain Mr. Clayton’s view that cybersecurity needs more attention and coordination between companies and governments, Mr. Lawrence said.
“A big theme that I worked on with Jay is resiliency and continuity, because bad things will happen and some can be foreseen but some are unpredictable,” Mr. Lawrence said.
Mr. Clayton’s work has touched some of the biggest crises and challenges the SEC has faced, from the cataclysmic failure of Lehman Brothers Holdings Inc. in 2008 to the blockbuster 2014 initial public offering of Alibaba Group Holding Inc., the biggest IPO ever in U.S. markets.
In the Alibaba deal, Mr. Clayton advised underwriters that sold the firm’s stock to the public. The offering was a high-stakes affair for the SEC, which pressed the Chinese company to reveal more about its complex business and leadership structure—and is now, according to the company, probing the firm’s accounting practices. Alibaba’s bylaws allow a group of partners, including its founder Jack Ma, to nominate a majority of its board.
“It’s a company that has very limited voting rights for its investors,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, referring to Alibaba. “It’s fair to ask, if he’s going to head the SEC, what are his views on that?” In recent years, the agency has required firms to detail in their public filings any deviations from one vote per share.
Mr. Clayton, who teaches a course on mergers and acquisitions at his alma mater, the University of Pennsylvania Law School, co-authored a 2012 paper that urged the U.S. government provide taxpayers with an annual report on the state of its finances—by adopting the “10-K” format that public companies must use under SEC rules.
“The annual reporting requirements imposed upon our public companies to protect and inform their shareholders should be extended to our government,” Mr. Clayton and his four co-authors wrote. “Our citizens—the shareholders in our great democracy—deserve a candid and accessible assessment of where we stand that comes directly from our leaders.”
Write to Dave Michaels at firstname.lastname@example.org
By Kara Scannell in New York
Financial Times (FT)
When the US financial system came crashing down in 2008, Walter “Jay” Clayton, the man who has been nominated as the top US markets watchdog, had a front-row seat.
He first advised the board of Bear Stearns in its fire sale to JPMorgan Chase, and then helped Lehman Brothers Holdings in its ill-fated attempted to find a saviour before filing for bankruptcy protection.
He has also been there for celebratory moments, helping Goldman Sachs secure a $5bn investment from Warren Buffett’s company and advising Alibaba on its record 2014 initial public offering.
Now Donald Trump, US president, has selected this low-key attorney with a gold-plated roster of clients and an impressive golf game to head the Securities and Exchange Commission.
That raises the question of how Mr Clayton will use his behind the scenes knowledge: as a friend of Wall Street or investor advocate.
“One of the things that give me hope is that he is a highly skilled corporate attorney who really knows securities laws,” said James Angel, a professor at Georgetown University, who does not know Mr Clayton personally. “The question is, what is he going to do with his knowledge?”
Mr Clayton is a pillar of the New York establishment, having spent his entire career at Sullivan & Cromwell, the “white shoe”, or prestigious, law firm where he serves as a trusted tactical adviser for his clients, rather than a headline-grabbing rainmaker.
Early indications are that he will be more focused on working with financial services groups and more interested in easing rules than handing out record punishments.
That shift in emphasis is typical when the chairmanship of the five-member commission moves from being a Democratic appointee to a Republican, but it would mark a change for the agency — under the Obama administration, the two SEC chairmen spent much of their time on enforcement and writing tighter rules in the wake of the financial crisis and the passage of the 2010 Dodd-Frank financial reform act.
Mr Clayton declined to comment for this article, but people familiar with his thinking say he is likely to start by easing capital-raising rules.
Groups including the Chamber of Commerce have argued that tight regulations enacted since 2002 make it unattractive for companies to go public and they cite the drop in initial public offerings: in 2015 there were 152 IPOs, down from 845 in 1996.
Mr Clayton understands the importance of “raising capital inexpensively in this country and the importance of having markets that are fair, accessible and well regulated”, said Matthew Biben, a law school classmate and a litigator at Debevoise & Plimpton.
“I don’t think he will shirk from enforcement when necessary, but I don’t think he’ll seek it out to make a name for himself either.” He is also expected to align with a prominent Republican party line of thinking that securities enforcement should focus on investigating individuals, and weigh up corporate fines against shareholder harm, said a person familiar with the matter.
Mr Clayton knows first hand the struggles of small businesses.
He grew up near Hershey, Pennsylvania, where his father worked for a time at the chocolate company.
The family later settled outside Philadelphia, where his parents operated several small companies, including a logistics and steel warehousing business that initially prospered and then struggled as the local economy changed.
In ninth grade, Mr Clayton met his future wife Gretchen, who now works as a private wealth manager at Goldman Sachs.
She plans to resign from her position if he is confirmed by the Senate as SEC chairman, a person familiar with their thinking said. He studied and played soccer at Lafayette University before transferring to the University of Pennsylvania, where he earned a degree in engineering.
After studying economics at the University of Cambridge in the UK, he returned to Penn for law school. It was then that he developed the seeds of a serious golf game, which began as a hobby with his grandfather.
He has played at some of the top private clubs in the New York area, and came second at the club championship tournament at the Baltusrol Golf Club, where his handicap is an enviable 3.5.
After working as a clerk for a federal judge, Mr Clayton joined Sullivan & Cromwell, where he spent the next two decades working from its Washington DC, London and New York offices.
As a lawyer, he started out by helping companies raise money, but he has since emerged as a go-to adviser for financial institutions. While representing Ally Financial as part of a national mortgage settlement with state and federal authorities, he worked alongside Rodgin Cohen, a heavyweight in the legal community who straddled the role advising the government and financial institutions during the crisis.
“He’ll understand the business side but he’ll also understand the importance of his role as a regulator making sure the playing field is level and no one gets a short-cut simply because they belong to any special class of people,” said Cyrus Vance, the district attorney for Manhattan, who has known Mr Clayton for years.
If confirmed, Mr Clayton will take office at a time when partisan tensions are high and the Trump administration has publicly committed itself to rewriting Dodd-Frank. “The present moment is a delicate one,” Mary Jo White, the departing SEC chairman, warned in a recent speech.
“The post-crisis commission has been revitalised and remains the investor’s strongest advocate, but it is more susceptible than ever to the erosion of its expertise and authority by the partisan tides.”
Lawyers who have worked with Mr Clayton say he has talents the SEC needs: someone who can manoeuvre politically who has a deep understanding of corporations. “He’s really very smart, extremely thoughtful, and very reasonable. He knows the markets and I think he’ll be a very good leader,” said Andrew Ceresney, a former SEC enforcement director under the Obama administration.
Mr Clayton has donated to more Republicans than Democrats but did not give to Mr Trump’s campaign, according to the Center for Responsive Politics. He was asked by a long-time client to offer suggestions to the Trump transition team and responded with proposals to make US equity markets more open and to promote growth by reducing regulatory barriers.
That led to a meeting just before Christmas with Mr Trump at his Mar-a-Lago estate in Florida and an official offer followed.
Low-key attorney is pillar of the establishment
● Grew up outside Hershey and then in Philadelphia, Pennsylvania
● Attended Lafayette College, University of Pennsylvania, and University of Cambridge
● Clerked for US District Judge Marvin Katz in Pennsylvania
● Joined Sullivan & Cromwell in 1995
● Advised: Ally Financial on its IPO and in a mortgage settlement with state authorities; Bear Stearns’ sale to JPMorgan; Barclays’ purchase of Lehman Brothers assets; British Airways’ merger with Iberia; Eni in an overseas corruption probe; Goldman Sachs on a variety of transactions; the IPOs of Alibaba, Oaktree Capital and Och-Ziff
The Financial Times Limited