Goldman Sachs may be about to get another friend in Washington.
Jay Clayton, a well-connected Wall Street lawyer who is President Donald Trump's pick to lead the Securities and Exchange Commission, is sure to face sharp questions from Democrats at his confirmation hearing Thursday over his years of work for Goldman and other financial giants.
Trump has already drawn upon Goldman alumni for key financial posts in his administration — notably for Treasury secretary, Steven Mnuchin, and the head of the National Economic Council, Gary Cohn. Clayton, a partner in the white-shoe law firm Sullivan & Cromwell, has done significant legal work for the Wall Street giant.
As SEC chairman, Clayton would be in charge of, among other things, protecting investors from wrongdoing on Wall Street. He would oversee the enforcement of rules written by the SEC under the law that reshaped the regulation of banks and Wall Street after the 2008 financial crisis and the Great Recession. And he would take part in deciding on enforcement actions that SEC attorneys bring against corporations and financial firms.
For critics, the big question will be: How vigorous a regulator would Clayton prove to be?
Clayton would take over the leadership of the SEC with a Republican majority among its eventual five members. (Three seats are vacant.) In line with Trump's pledge to ease many rules that flowed from the Dodd-Frank financial regulatory law, a Clayton-led SEC would be expected to take a comparatively loose approach to regulation.
Though Clayton's confirmation is virtually assured by the Republican-controlled Senate, Democrats on the Senate Banking Committee say they will come prepared Thursday with a volley of skeptical questions.
"It's hard to see how an attorney who's spent his career helping Wall Street beat the rap will keep (Trump's) promise to stop big banks and hedge funds from 'getting away with murder," Sen. Sherrod Brown of Ohio, the committee's senior Democrat, said after Clayton's nomination was announced in January. "I look forward to hearing how Mr. Clayton will protect retirees and savers from being exploited, demand real accountability from the financial institutions the SEC oversees, and work to prevent another financial crisis."
Among the targets for critics is Clayton's blue-chip client list, brimming with Wall Street powerhouses and hedge funds as well as some corporations that have faced accusations of misconduct. Among them are Valeant Pharmaceuticals, a Canadian drug maker that is the target of at least 10 government investigations, including a congressional probe into drug prices, and Volkswagen, embroiled in a scandal over alleged emissions cheating.
For Democrats who have questioned the influence they say Goldman Sachs is gaining in the Trump administration, Clayton's ties to that firm may loom particularly large. He has represented and advised Goldman in numerous major deals. In addition, Clayton's wife, Gretchen Butler Clayton, works at Goldman as a financial adviser. (She has committed to resign if her husband is confirmed.)
In the past, Clayton has also made statements critical of mandates that financial regulations have imposed on companies.
"He is the fox guarding the henhouse in every possible way," says Lisa Gilbert, vice president of legislative affairs at Public Citizen. "It's a real question whether he'll be a tough enforcer."
Others take a more positive view of Clayton's selection.
"This may be a good time for that kind of person," said James Cox, a professor at Duke University Law School who is an expert on securities law and is a close SEC-watcher.
Cox's reasoning is that in the years since the 2008 financial crisis, the SEC has been consumed with writing rules under the Dodd-Frank law. Now, with that work mostly done, Cox suggested, Clayton is likely to steer the SEC back to its more fundamental responsibilities, such as overseeing rules for raising capital and rethinking disclosure requirements to make them better suited to a company's size.
To that end, Republican lawmakers have been pushing the SEC to ease the rules for smaller companies to raise capital in the markets — an area related to Clayton's experience.
Clayton appears to point in that direction in his opening remarks prepared for the hearing.
"It is clear that our public capital markets are less attractive to business than in the past," he says in the written remarks. "As a result, investment opportunities for Main Street investors are more limited. Here I see meaningful room for improvement."
More broadly, Clayton pegs the SEC's critical responsibility as "making sure our markets are fair, open, orderly and efficient — and ensuring that investors are protected." He promises to "take up this responsibility with energy and purpose" if confirmed.
William McLucas, the SEC's enforcement director through much of the 1990s, said he thinks the choice of Clayton "signals a bit of a change in tone for the agency." In recent years the SEC pursued "a very aggressive" enforcement agenda under Obama's appointee Mary Jo White, a former federal prosecutor, said McLucas, who leads the securities practice at law firm WilmerHale.
Under Clayton, McLucas suggested, the SEC might shift away from the approach of pursuing all manner of violation, large and small, to send a message.
With his vast experience in corporate mergers and public stock launches, Clayton, 50, has worked on many of the kinds of Wall Street deals the SEC regulates. Besides Goldman, he has represented Barclays, Deutsche Bank and UBS. His client roster means he might have to step aside from deciding on some enforcement cases that come before the SEC.
Some of the biggest deals he worked on came in the panicky crisis days of 2008. Clayton represented Goldman in Warren Buffett's $5 billion investment in the bank and the teetering Bear Stearns in its rescue sale to JPMorgan Chase.
He also worked on many deals involving bringing companies public, notably the 2014 U.S. stock market debut of Chinese e-commerce giant Alibaba — the biggest-ever initial public offering. The SEC has been investigating Alibaba's accounting practices and sales data.
Clayton's financial disclosure filing shows that other big corporate clients — including Ally Financial, Royal Bank of Canada, Volkswagen, British Airways, Priceline Group and Valeant. In addition, two of the biggest hedge funds — activist investor Bill Ackman's Pershing Square and Paul Tudor Jones's Tudor Investment Corp. — are among his clients.