Policing Wall Street

GWEN IFILL:

With me now are two close observers of the Securities and Exchange Commission. John Coffee is professor of law at the Columbia University Law School. And Robert Mintz is a former federal prosecutor, and head of the government investigations and white collar practice at McCarter & English, a New Jersey-based law firm.

Mr. Coffee, let's begin with you. Give us your first impressions of this selection.

JOHN COFFEE:

Well, he's universally respected and he's almost the exact opposite of Harvey Pitt. He is a conciliator, a consensus builder where Mr. Pitt is more of a combative litigator, which was his prior career. Bill Donaldson is also a man without any real ideology. He isn't going to have an agenda that he's going to want to push. In that sense he'll be quite different than either an Arthur Levitt who was a reformer, or a Harvey Pitt who believed in deregulation.

I think he's likely to function more as kind of a chairman of the board type who will delegate considerable authority to the SEC staff and deal with the critical issues that come up to his level. And, there, he's always shown good judgment and absolute integrity. So I'm encouraged by his appointment.

GWEN IFILL:

Mr. Mintz, what is your take on what influenced the president's choice of Mr. Donaldson?

ROBERT MINTZ:

I think this appointment falls very much in line with other top high-level appointments taken by this administration. They're looking for somebody here who is going to have a steady hand on the tiller of the Securities and Exchange Commission. They're trying to avoid the gaffes and missteps of the predecessor Harvey Pitt. And I think in selecting Mr. Donaldson they really have gone back and found somebody who is a known commodity, someone whose ties go back to the Bush family for decades, and someone who they believe will provide the steady hand to guide the SEC and try to restore investor confidence.

GWEN IFILL:

Mr. Mintz, let me stay with you for a moment. We know that when Harvey Pitt was nominated for this job he was also universally praised as the guy to do the tough job that was needed. Are there hidden weaknesses with Mr. Donaldson that, as emerged with Mr. Pitt over time, that we're not talking about yet?

ROBERT MINTZ:

Well, that's always a possibility. But I think that the Bush administration has really tried very hard to avoid those problems in this appointment. They've selected somebody who has management skills as opposed to somebody who is a litigator. They've selected somebody who has a prior stint in government so hopefully this is someone who will not have a tin ear to politics the way Mr. Pitt ended up having.

And I think here what they've done is selected a very safe appointment, somebody who is not going to draw opposition from any quarter and somebody who I think ultimately may lower the profile of the SEC, provide stability and really shift over to the Department of Justice the role of going after corporate scandals, prosecuting the WorldCom's, prosecuting the Enron's and really taking the lead in that type of aggressive prosecution. The SEC on the other hand will now sail along, I think, in a much steadier way. They will avoid missteps, avoid the gaffes and really focus on the accounting board and other Sarbanes-Oxley reforms that I think have already been in place.

GWEN IFILL:

Mr. Coffee, let's talk a little bit more about Mr. Donaldson's resume. He has been a corporate leader. He ran Aetna. He was chairman of the New York Stock Exchange. He's been on corporate boards. Is there baggage that comes with that kind of a resume?

JOHN COFFEE:

I think he was chosen precisely because he doesn't have the exposed flanks. He has not had the same clients who have been involved in active litigation with the SEC that either Mr. Pitt or some of the other recent considered nominees have had, and he simply doesn't give rise to any controversy. He's been in the public light for a long time without any problem arising. And in running the New York Stock Exchange, he ran it on a scandal free basis that I think suggests that he knows how to keep the reputation of his agency strong.

GWEN IFILL:

If he also ran it in scandal free basis and didn't make a lot of waves, is he the kind of regulator that the SEC needs to make waves if it's needed?

JOHN COFFEE:

Well, I don't think he's going to be the same activist as either an Arthur Levitt or a Harvey Pitt. Partly it's a matter of age and partly a matter of a style that tries to conciliate and tries to compromise and will probably delegate the enforcement mission down to enforcement specialists. He is not a lawyer. He's not an enforcement expert. And I think he will depend on experts to do that, but I think that's normally the way the SEC works. The thing that he will do best is, I believe, that he will depoliticize the SEC. Over the last year it's become more divided, more contentious, and the SEC has historically not been that way. It's been an agency where no one focused on whether you were a Republican or a Democrat; they focused on the right policy for the markets. That's really not normally a political issue.

GWEN IFILL:

Mr. Mintz, what about his connections to Wall Street? If he is indeed apolitical in the sense of Washington, is it too political in the sense of Wall Street?

ROBERT MINTZ:

There will be some who will take that approach. There are many out there who believe that someone who had more of a prosecutorial bent would be right for the position given the unprecedented turmoil that the SEC has faced. However, I think that this administration has opted for someone who will take a lower profile.

Although he comes from Wall Street and certainly is well respected, has ties to Wall Street, is not going to draw opposition from Wall Street, I think his tenure as head of the New York Stock Exchange shows that he does have the ability to lead, he does have a vision. When he headed the New York Stock Exchange, he did make a point of taking a stand telling brokers that they really had to try to look out for the small investor, that they ought to make money based upon money made for investors rather than volume and trading. So I do think we'll see some low-key reforms, but I don't think we're going to see somebody who is going to do a lot of grandstanding or someone who is going to raise the SEC to a higher profile than we've seen in the past.

GWEN IFILL:

Mr. Coffee, in the president's selection of Paul O'Neill originally to be Secretary of Treasury and his substitution now he has also gone to the ranks of CEOs to replace him with Mr. Snow. Now he's also going to the ranks of former CEOs here with Mr. Donaldson. Is that what the SEC needs now, a CEO? Are these the kinds of issues that the SEC is really facing?

JOHN COFFEE:

I don't think I would recommend that you have to be a CEO to be SEC Chairman. It does seem to be the kind of profile that the Bush administration is happiest with. Whether it's Mr. O'Neill or Mr. Snow or Mr. Donaldson, they want someone who has run a large organization and kept it scandal free. There are other people who were considered who were much more regulatory specialists; people who ran the NASD or other enforcement agencies. And I think they could have done an excellent job as well but they don't have quite the same chairman of the board skills that Mr. Donaldson has. And I think from the standpoint of the White House, they would like to see the SEC get a little less attention and be a little less the subject of internal controversy.

GWEN IFILL:

Let's talk about the internals at the SEC, Mr. Coffee. What are the primary challenges right now? Is it staffing? Is it resources as the president alluded to today? Is it morale?

JOHN COFFEE:

I think there is a morale crisis at the SEC. I talked to a number of people there. I would have to say that for a long time they have been overworked and underpaid and there's a cumulative effect. Over recent months I think they've been somewhat embarrassed by recent controversies and they were subject to a lot of internal criticism. Harvey Pitt's style wasn't always the smoothest or the most diplomatic in dealing with his underlings. I think Mr. Donaldson can, and I hope he will re-inspire, the agency and suggest to them that they do have a common mission, that there aren't divisions and I think that the SEC has always had some of the best staff in Washington but it's in danger unless it gets the money and gets the resources of becoming less effective.

GWEN IFILL:

Mr. Mintz, another class of interested parties here are the investors. Can the investors look at this new leadership as something that should be reassuring to them or is it a wait and see?

ROBERT MINTZ:

I think it's reassuring. I think there are people who would have liked to see someone who was going to be more aggressive than perhaps we'll see from Mr. Donaldson, but I do think that part of this job is public relations as well as running this agency, and in having a steady hand and avoiding some of the missteps of his predecessor, that in and of itself will restore investor confidence. It will set the ship back on a steady course and in doing that over time incrementally investors will become more confident in the marketplace and will begin to get back into the stock market something that we've seen them flee from in great numbers over the last several months.

GWEN IFILL:

And, Mr. Coffee, we hear Mr. Mintz just make the reference about the need for aggressiveness in a role like this. Have attorneys general, have state prosecutors like Elliott Spitzer where you are in New York basically replaced the SEC or the federal government as the top watchdog in cases like this?

JOHN COFFEE:

I won't say they've replaced them, but I think there is a desirable regulatory competition going on. To the extent there was something of a void, people like Elliott Spitzer came in and filled that void, and I think in turn they motivated the SEC, which began to fear that if they stayed passive, they would lose their former leadership role. And I think competition is good in many things, and here it's good for the competition among enforcement agencies because it keeps the principal one from becoming passive.

GWEN IFILL:

John Coffee and Robert Mintz, thank you very much for joining us.