Taibbi on Mary Jo

[don]

Choice of Mary Jo White to Head SEC Puts Fox In Charge of Hen House

Matt Taibbi



Mary Jo

I was shocked when I heard that Mary Jo White, a former U.S. Attorney and a partner for the white-shoe Wall Street defense firm Debevoise and Plimpton, had been named the new head of the SEC.

I thought to myself: Couldn't they have found someone who wasn't a key figure in one of the most notorious scandals to hit the SEC in the past two decades? And couldn't they have found someone who isn't a perfect symbol of the revolving-door culture under which regulators go soft on suspected Wall Street criminals, knowing they have million-dollar jobs waiting for them at hotshot defense firms as long as they play nice with the banks while still in office?

I'll leave it to others to chronicle the other highlights and lowlights of Mary Jo White's career, and focus only on the one incident I know very well: her role in the squelching of then-SEC investigator Gary Aguirre's investigation into an insider trading incident involving future Morgan Stanley CEO John Mack. While representing Morgan Stanley at Debevoise and Plimpton, White played a key role in this inexcusable episode.

As I explained a few years ago in my story, "Why Isn't Wall Street in Jail?": The attorney Aguirre joined the SEC in 2004, and two days into his job was asked to look into reports of suspicious trading activity involving a hedge fund called Pequot Capital, and specifically its megastar trader, Art Samberg. Samberg had made suspiciously prescient trades ahead of the acquisition of a firm called Heller Financial by General Electric, pocketing about $18 million in a period of weeks by buying up Heller shares before the merger, among other things.

"It was as if Art Samberg woke up one morning and a voice from the heavens told him to start buying Heller," Aguirre recalled. "And he wasn't just buying shares – there were some days when he was trying to buy three times as many shares as were being traded that day."

Aguirre did some digging and found that Samberg had been in contact with his old friend John Mack before making those trades. Mack had just stepped down as president of Morgan Stanley and had just flown to Switzerland, where he'd interviewed for a top job at Credit Suisse First Boston, the company that happened to be the investment banker for . . . Heller Financial.

Now, Mack had been on Samberg's case to cut him in on a deal involving a spinoff of Lucent. "Mack is busting my chops" to let him in on the Lucent deal, Samberg told a co-worker.

So when Mack returned from Switzerland, he called Samberg. Samberg, having done no other research on Heller Financial, suddenly decided to buy every Heller share in sight. Then he cut Mack into the Lucent deal, a favor that was worth $10 million to Mack.

Aguirre thought there was clear reason to investigate the matter further and pressed the SEC for permission to interview Mack. Not arrest the man, mind you, or hand him over to the CIA for rendition to Egypt, but merely to interview the guy. He was denied, his boss telling him that Mack had "powerful political connections" (Mack was a fundraising Ranger for President Bush).

But that wasn't all. Morgan Stanley, which by then was thinking of bringing Mack back as CEO, started trying to backdoor Aguirre and scuttle his investigation by going over his head. Who was doing that exactly? Mary Jo White. This is from the piece I mentioned, "Why Isn't Wall Street In Jail?":

It didn't take long for Morgan Stanley to work its way up the SEC chain of command. Within three days, another of the firm's lawyers, Mary Jo White, was on the phone with the SEC's director of enforcement. In a shocking move that was later singled out by Senate investigators, the director actually appeared to reassure White, dismissing the case against Mack as "smoke" rather than "fire." White, incidentally, was herself the former U.S. attorney of the Southern District of New York — one of the top cops on Wall Street . . .

Aguirre didn't stand a chance. A month after he complained to his supervisors that he was being blocked from interviewing Mack, he was summarily fired, without notice. The case against Mack was immediately dropped: all depositions canceled, no further subpoenas issued. "It all happened so fast, I needed a seat belt," recalls Aguirre, who had just received a stellar performance review from his bosses. The SEC eventually paid Aguirre a settlement of $755,000 for wrongful dismissal.

It got worse. Not only did the SEC ultimately delay the interview of Mack until after the statute of limitations had expired, and not only did the agency demand an investigation into possible alternative sources for Samberg's tip (what Aguirre jokes was like "O.J.'s search for the real killers"), but the SEC official who had quashed the Mack investigation, Paul Berger, took a lucrative job working for Morgan Stanley's law firm, Debevoise and Plimpton, just nine months after Aguirre was fired.

It later came out that Berger had expressed interest in working for the firm during the exact time that Aguirre was being dismissed and the Mack investigation was being quashed. A Senate investigation later uncovered an email to Berger from another SEC official, Lawrence West, who was also interviewing with Debevoise and Plimpton at the time. This is from the Senate report on the Aguirre affair:

The e-mail was dated September 8, 2005 and addressed to Paul Berger with the subject line, "Debevoise.'' The body of the message read, "Mary Jo [White] just called. I mentioned your interest.''

So Berger was passing notes in class to Mary Jo White about wanting to work for Morgan Stanley's law firm while he was in the middle of quashing an investigation into a major insider trading case involving the C.E.O. of the bank. After the case dies, Berger later gets the multimillion-dollar posting and the circle is closed.

This whole episode highlights everything that's wrong with modern Wall Street. First of all, everybody's buddies with each other – cops and robbers, no adversarial system at all. As Bill Murray would say, it's dogs and cats, living together.

Here, a line investigator gets a good lead, it's quickly taken out of his hands and the whole thing is negotiated at 50,000 feet by friends and former co-workers of the top regulators now working at hotshot firms.

If Barack Obama wanted to send a signal that he's getting tougher on Wall Street, he sure picked a funny way to do it, nominating the woman who helped John Mack get off on the slam-dunkiest insider trading case ever to cross an SEC investigator's desk.

When I contacted Gary today, his take on it was simple. "Obama is not going to clean up financial corruption," he said, "by pinning a sheriff's badge on Wall Street's protector-in-chief."

http://www.rollingstone.com/politics...#ixzz2J61YN6kY

[Southernguy]

Re: Taibbi on Mary Jo

Funny:
USA ranks 19th. in the corruption perception index with a 73 reading. "Less corrupt" countries have a 90 reading. "Most corrupt" (Somalia, Afghanistan, North Korea) read 8 . As per the CPI USA is approximately between the 10% less corrupt countries in the world.
Either this world is very, very corrupt or the index is flat wrong.

[RebbePete]

Re: Taibbi on Mary Jo

There are precious few real journalists left. I'm surprised, however, to find such an impressive one writing for Rolling Stone. It does, however, beg the question of how we would ever clean house in the USA, with a complicit media and the unification of big business and big government into a corporatocracy. Both political parties have been severely compromised.

"Behind the ostensible government sits enthroned an invisible government owing no allegiance and acknowledging no responsibility to the people." (Teddy Roosevelt)

We need a president like him.

[BadJuju]

Re: Taibbi on Mary Jo

Yes, we certainly do.

[shiny!]

Re: Taibbi on Mary Jo

Funny:
USA ranks 19th. in the corruption perception index with a 73 reading. "Less corrupt" countries have a 90 reading. "Most corrupt" (Somalia, Afghanistan, North Korea) read 8 . As per the CPI USA is approximately between the 10% less corrupt countries in the world.
Either this world is very, very corrupt or the index is flat wrong.

What markers are used to evaluate corruption? The USA might have fewer corrupt officials, but their impact is larger. In heavily corrupt countries, bribing cops, judges, inspectors, etc. is the norm; it's part of doing business. That type of low-level bribery isn't universally common in the USA (or perhaps it is and I'm simply naive). Here, corruption involves special interests writing legislation that favors their businesses, and getting their people into the right high-level government jobs in order to protect them. All totally legal and even celebrated inside the beltway.

[don]

Re: Taibbi on Mary Jo

Funny:
USA ranks 19th. in the corruption perception index with a 73 reading. "Less corrupt" countries have a 90 reading. "Most corrupt" (Somalia, Afghanistan, North Korea) read 8 . As per the CPI USA is approximately between the 10% less corrupt countries in the world.
Either this world is very, very corrupt or the index is flat wrong.

Is corruption relative? My concern has always been with life deteriating here at home, the USA, rather than any race to the top of global corruption. We're less corrupt that Somalia. That means nothing to me.

[GRG55]

Re: Taibbi on Mary Jo

Funny:
USA ranks 19th. in the corruption perception index with a 73 reading. "Less corrupt" countries have a 90 reading. "Most corrupt" (Somalia, Afghanistan, North Korea) read 8 . As per the CPI USA is approximately between the 10% less corrupt countries in the world.
Either this world is very, very corrupt or the index is flat wrong.

This world is very, very corrupt...

[lakedaemonian]

Re: Taibbi on Mary Jo

While the country expends it's limited political attention span/energy divided over partisan lines on a gun control "crisis" a risk actuary would find silly..........


...........the machine continues to eat the American Dream.


The question of: "Why do Americans cling to their guns?"


can be partially answered with: "Why isn't ANYONE from Wall Street in jail?"

This article is as relevant to a 2nd Amendment deterrence against tyranny argument as it is an article relevant to and in complete support of EJ's FIRE economy analysis over the years.

I may have a very hard time keeping up with some of the more complex/esoteric finance and economics stuff, but to me the connections between:

*special interest corruption of the US political process

*FIRE economy

*media ownership concentration down to just the "Big 6"

*attrition of the 2nd Amendment as genuine effort or distraction is irrelevant,but the mass media narrative that has redacted the word tyranny like out of an Orwellian nightmare is not.

*NOT ONE Wall Street player in jail

...are big enough for a blind person to see.

I have more respect for the folks I've seen in the 3rd world.......at least their players are not pretending to be honest.....they often openly steal absolutely everything they can, balancing the theft against the risk of their heads on sticks.

[jk]

Re: Taibbi on Mary Jo

i think you're on to something, lakedaemonian. i think the gun arguments have attained the status of the abortion arguments- puppet shows to engage and distract the masses. otoh, i don't think the gun arguments are ultimately tied to the notion of fighting tyranny, except in the most symbolic and abstract ways. waco and ruby ridge would be the relevant templates: the swat teams will prevail in any local confrontation. meanwhile the monitoring of all electronic communications and the internet kill-switch will prevent any organized resistance and/or be used to find and eliminate organizers early in the process. i think i have to watch woody allen's "sleeper" again soon. in some ways it was quite prescient. whenever i read about what's going on with hugo chavez, i think of the sleeper-world's tyrant being the remnant after an assassination attempt - just his nose - on life support.

[leegs]

Re: Taibbi on Mary Jo

... i don't think the gun arguments are ultimately tied to the notion of fighting tyranny, except in the most symbolic and abstract ways. waco and ruby ridge would be the relevant templates: the swat teams will prevail in any local confrontation. meanwhile the monitoring of all electronic communications and the internet kill-switch will prevent any organized resistance and/or be used to find and eliminate organizers early in the process....

Its a good point JK and one that I ponder. I think you're correct, IF the context is the current environment in the US - govt is rich, people are generally ok in material terms, most people think the govt is on their side, etc. But if the context is the far future (30 years? 50? ) with a depleted US (both the govt and the public) due to rearrangement of the IMS, energy constraints, continued drag of corruption, accompanied by widespread discontent, how might that change things?

[lakedaemonian]

Re: Taibbi on Mary Jo

i think you're on to something, lakedaemonian. i think the gun arguments have attained the status of the abortion arguments- puppet shows to engage and distract the masses. otoh, i don't think the gun arguments are ultimately tied to the notion of fighting tyranny, except in the most symbolic and abstract ways. waco and ruby ridge would be the relevant templates: the swat teams will prevail in any local confrontation. meanwhile the monitoring of all electronic communications and the internet kill-switch will prevent any organized resistance and/or be used to find and eliminate organizers early in the process. i think i have to watch woody allen's "sleeper" again soon. in some ways it was quite prescient. whenever i read about what's going on with hugo chavez, i think of the sleeper-world's tyrant being the remnant after an assassination attempt - just his nose - on life support.

One of the things I find troubling with the "why bother trying, we will lose, the government is all powerful" argument is that while we all can provide top of mind examples of horrendous totalitarianism:

*None of them lasted forever

*I'm not aware of any that could incubate/grow/reach maturity in an environment with comprehensive private ownership of firearms.

*defeatist attitudes isn't the answer, deterrence/prevention of tyranny thru effective political action backstopped by the 2nd Amendment is the value of the 2nd Amendment, NOT in eliminating tyranny AFTER it exists.....because the end result would inevitably be the same, but the cost would be far, far greater


On the one hand, many note the inability of a military superpower to defeat a poorly trained and poorly armed and uneducated part-time guerrilla movement.

On the other hand, many claim(many of the same) that the same military superpower would easily defeat a comprehensively armed population under the auspices of a future government turned tyrannical.

It's a bit contradictory isn't it?

What I believe most people fail to grasp about either/both foreign counter insurgency campaigns as well as the domestic gun buying spree in the US is the word governance.

Effective governance wins campaigns against insurgencies/rebellions/insurrections NOT soldiers and weapons.......storm troopers are merely a bandaid trying to stop the inevitable outcome of gangrene(poor governance). Or conversely, the military only buy time for a change in government policy and the implementation of more effective governance.

The Taliban in Afghanistan display better governance in parts of Afghanistan than the government both through fairer/harsher justice and less corruption.

In the Philippines, the government has it's insurgencies mostly beaten, but they continue to smolder, and may break out into fire again.....if the Philippine government fails in providing effective enough governance...it's not a military solution it's a civil solution.

I reckon the same applies in the US(albeit the US is pre-large scale protest, which is pre-civil disobedience, which is pre-civil unrest, which is pre-political violence, which is pre-organized political violence, etc, etc.)

I believe the spike in firearms sales in the US in recent years is due to the declining quality of governance which is exemplified in FIRE economy "players" having excessive influence and control over the US political process which flows through to include crony capitalist control over large swathes of the US economy and even control over the US law enforcement and judicial system when the corruption and theft becomes TOO blatant.

I don't think anyone expects perfection......people with common sense understand that corruption cannot be eradicated, merely contained.

Much like EJ's suggestion that not every culprit on Wall Street needs to do the "perp walk", but some of them HAVE to do the "perp walk" for there to be closure for the masses calling for Wall Street blood.

The failure to see a single "player" on TV doing the perp walk exemplifies failing governance in the US.

The pursuit of perfection is a road to ruin......communism was the pursuit of perfection....gun control is also the pursuit of perfection.

And we live in a seriously imperfect world.

I would think the best course of action is the pursuit of excellence.

The pursuit of excellence in federal governance by seriously mitigating(but never eliminating) the corrosive effects of FIRE economy control of the US political process.

What scares me is that what used to be a tolerable and largely hidden level of corruption has given way to such blatant, excessive, and unsustainable levels of corruption.

Isn't corruption inversely proportional to effective governance?

Isn't effective governance directly proportional to individual and collective perceptions of legitimacy?

That's why I perceive this as all completely and directly related.

And to be crystal clear, I do not condone or feel comfortable in discussing potentially darker paths the US may take in the journey ahead.

I'm more comfortable talking about how the 2nd Amendment can bring value in helping improve the chances of the US avoiding the darker paths earlier in the journey.

[lakedaemonian]

Re: Taibbi on Mary Jo

Here's another related bit.

A PBS Frontline 1 hour video on why no one from Wall Street has done the "perp walk":

http://www.pbs.org/wgbh/pages/frontline/untouchables/

[don]

The Selling of Mary Jo

"You don't want to mess with Mary Jo."
President Obama

"putting a tougher face on an agency still tainted by embarrassing enforcement missteps in the run-up to the financial crisis."
The Wall Street Journal

"renewed resolve to hold Wall Street accountable."
NY Times

By ANDREW ROSS SORKIN

Hold on . . .

She has spent the last decade vigorously defending - and billing by the hour - Wall Street's biggest banks, as a rainmaking partner at the white-shoe law firm Debevoise & Plimpton. The average partner at the firm was paid $2.1 million a year, according to American Lawyer; but she was no average partner, very likely being paid at least double that. Her husband, John W. White, is a corporate partner at Cravath, Swaine & Moore. He counts JPMorgan Chase, Credit Suisse and UBS as clients. The average partner at Cravath makes $3.1 million. He, too, was a former official at the S.E.C. - he left Cravath to run the corporate division of the S.E.C. starting in 2006 just in time for the run-up to the financial crisis. He left in November 2008, a month after the bank bailouts, to return to Cravath.It seems Mr. and Ms. White have made a fine art of the revolving door between government and private practice.

So how conflicted is Ms. White? Let's count the ways.

They are well documented: she was JPMorgan Chase's go-to lawyer for many of the cases brought against it relating to the financial crisis. She was arm-in-arm with Kenneth D. Lewis, Bank of America's former chief executive, keeping him out of trouble when the New York attorney general accused Mr. Lewis of defrauding investors by not disclosing the losses at Merrill Lynch before completing Bank of America's acquisition of the firm. (And empirically, Mr. Lewis did keep crucial information about the deal from investors.)

This is what she had to say about Mr. Lewis, in a court filing submitted on his behalf: "Some have looked to assign blame for every aspect of the financial crisis, even where there is no evidence of misconduct. This case is a product of that dynamic and does not withstand either legal or factual scrutiny." It was a refrain she often made about her clients related to the financial crisis.

And then there was Senator Bill Frist, the Republican from Tennessee, whom she successfully represented when the S.E.C. and the Justice Department started an investigation into whether he was involved in insider trading in shares of HCA, the hospital chain. She persuaded them to shut down the investigation.

She also worked with Siemens, the German industrial giant, when it pleaded guilty to charges of bribery, paying a record $1.6 billion penalty.

And then, of course, there was John Mack. She worked for the board of Morgan Stanley during a now well-publicized 2005 investigation into insider trading that ended soon after she made a phone call to the S.E.C. Using her connections at the top of the agency, she dialed up Linda Thomsen, then the commission's head of enforcement, to find out whether Mr. Mack, who was being considered for Morgan Stanley's chief executive position, was being implicated. He ultimately wasn't. As the Huffington Post pointed out in a recent article about Ms. White, Robert Hanson, an S.E.C. supervisor, later testified, "It is a little out of the ordinary for Mary Jo White to contact Linda Thomsen directly, but that White is very prestigious and it isn't uncommon for someone prominent to have someone intervene on their behalf."

All of Ms. White's previous engagements create not only an "optics" problem, but a practical, on-the-job problem. She will most likely need to recuse herself from just about anything related to her previous work.

"I will not for a period of two years from the date of my appointment participate in any particular matter involving specific parties that is directly and substantially related to my former employer or former clients, including regulations and contracts," is the language in an ethics pledge that she will have to agree to follow.

Some appointees, including Mary L. Schapiro, the former chairwoman of the S.E.C., recused themselves from any involvement in work that was related to a previous employer even after the two-year moratorium. Gary Gensler, the chairman of the Commodity Futures Trading Commission, recused himself from the investigation into MF Global because of his previous employment at Goldman Sachs, where Jon Corzine was the firm's head, even though it had been years since the two had worked together.
And then there is the issue of Mr. White's husband, who will have a continuing role at Cravath, one of the most pre-eminent firms in the country, whose clients include some of the nation's largest corporations.

"This president has adopted the toughest ethics rules of any administration in history," said Amy Brundage, a White House spokeswoman, "and this nominee is no exception. As S.E.C. chair, Mary Jo White will be in complete compliance with all ethics rules."

None of these conflicts gets at another potential problem for Ms. White. The job of chairwoman of S.E.C. isn't simply about enforcement; she has a deputy for that. The biggest challenge anyone who takes the job will have to confront over the next several years will be executing and enforcing provisions of Dodd-Frank and working to regulate electronic trading - something that even the most sophisticated financial professionals, let alone a lawyer, often have a tough time understanding. She has zero experience in this area.

Of course, there can always be a value to inviting a onetime rival onto the team.

"I believe she is one of those people who will understand that her public role will be very, very different than her role as a defense lawyer," Dennis M. Kelleher of Better Markets, a watchdog group, told me. "I don't think she's going to be like so many others who don't get that they have a very different role when they hold high public office.

"No question, she's said some things that are controversial and questionable," Mr. Kelleher said. "Moreover, I hope and expect that she will be asked publicly about them in the confirmation process and that she will have convincing answers."

Of course, if she is confirmed, we must all hope that she can put her previous client relationships behind her and work for her new client - us.

[c1ue]

Re: Taibbi on Mary Jo

The main reason corruption in the US seems less is because we're so rich as a nation.

It is much the same reason as why fraud spikes during recessions/depressions.

It isn't that the rate of fraud goes up, it is that people watch their money more closely when times are bad.

Well, how closely do you think someone watches money when there are entire nations who average under $10/day income per capita? Not only must the squeezers squeeze harder - both because the lemons being squeezed are so much smaller and less juicy, but also because the squeeze-ees are much more wary and reluctant to give up their goodies.

The corruption that exists in the US is all around us, but we don't acknowledge it as such because it isn't of immediate impact.

Consider the Bell, California scams: the police chief there was making over $400K a year. The entire town is around 35K people. That's more than $10/head per year. Not nothing, but pretty much invisible to each of those people.

If, on the other hand, the average income is $500/month, that $10 is a lot more apparent.

[don]

Re: Taibbi on Mary Jo

A few more things about Mary Jo White, the former prosecutor and corporate lawyer recently chosen by Barack Obama to head the SEC. Last week, I wrote about White's involvement in the notorious Gary Aguirre episode, wherein the former U.S. Attorney and then-partner at the hotshot white-shoe defense firm Debevoise and Plimpton helped squelch then-SEC investigator Aguirre's insider trading case against future Morgan Stanley CEO John Mack.

White, who was representing Morgan Stanley in this affair, went over Aguirre's head to talk directly to then-SEC enforcement chief Linda Thomsen about "reviewing" the case. After Aguirre was fired and the case against Mack went away, the official responsible for terminating the case, Aguirre's boss Paul Berger, was given a lucrative, multimillion-dollar job with Debevoise and Plimpton, closing the circle in what looks like a classic case of revolving-door corruption.

There are a few more troubling details about this incident that haven't been disclosed publicly yet. The first involve White's deposition about this case, which she gave in February 2007, as part of the SEC Inspector General's investigation. In this deposition, White is asked to recount the process by which Berger came to work at D&P. There are several striking exchanges, in which she gives highly revealing answers.

First, White describes the results of her informal queries about Berger as a hire candidate. "I got some feedback," she says, "that Paul Berger was considered very aggressive by the defense bar, the defense enforcement bar." White is saying that lawyers who represent Wall Street banks think of Berger as being kind of a hard-ass. She is immediately asked if it is considered a good thing for an SEC official to be "aggressive":

Q: When you say that Berger was considered to be very aggressive, was that a positive thing for you?
A: It was an issue to explore.

Later, she is again asked about this "aggressiveness" question, and her answers provide outstanding insight into the thinking of Wall Street's hired legal guns – what White describes as "the defense enforcement bar." In this exchange, White is essentially saying that she had to weigh how much Berger's negative reputation for "aggressiveness" among her little community of bought-off banker lawyers might hurt her firm.

Q: During your process of performing due diligence on Paul Berger, did you explore what you had heard earlier about him being very aggressive?
A: Yes.
Q: What did you learn about that?
A: That some people thought he was very aggressive. That was an issue, we really did talk to a number of people about.
Q: Did they expand on that as to why or how they thought he was aggressive?
A: I think and as a former prosecutor, sometimes people refer to me as Attila the Hun. I understand how people can get a reputation sometimes. We were trying to obviously figure out whether this was something beyond, you always have a spectrum on the aggressiveness scale for government types and was this an issue that was beyond real commitment to the job and the mission and bringing cases, which is a positive thing in the government, to a point. Or was it a broader issue that could leave resentment in the business community or in the legal community that would hamper his ability to function well in the private sector?

It's certainly strange that White has to qualify the idea that bringing cases is a positive thing in a government official – that bringing cases is a "positive thing . . . to a point." Can anyone imagine the future head of the DEA saying something like, "For a prosecutor, bringing drug cases is a positive, to a point?"

One would think that even a defense firm would value a regulator with an aggressive rep -- after all, a tough lawyer is a tough lawyer. What this testimony shows is that what is valued instead in this rarefied community of millionaire lawyers (where one can easily "get a reputation") is a talent for political calculation, and a sensitivity to what may or may not hamper one's ability to "function in the private sector." What they're looking for is someone who, when sitting in the regulator's seat, does the job, but doesn't live the job, if you catch the distinction.

Given that White has already made this move from enforcement to defense once, and given that we now know that she knows that firms like hers value regulators who can avoid creating "resentment in the business community" and retain their ability to "function in the private sector," I think it's safe to expect that White's SEC will take very good care to bring cases, but only "to a point."

A few more things about White and the Aguirre case. There's one extremely interesting section of the SEC Inspector General's report on the whole affair, and sheds some light on how these Wall Street attorneys work.

To quickly recap the case: Mack, the former president of Morgan Stanley, was between jobs in the early 2000s. He went to Switzerland to interview with Credit Suisse First Boston for a top post there. CSFB at the time was the investment banker for a company called Heller Financial, which was in the process of being acquired by GE. Right after Mack came back from Switzerland, he called an old friend, a hedge fund trader named Art Samberg from a company called Pequot Capital. Almost immediately afterward, Samberg, who had never held a meeting about Heller Financial or done any research in the firm, began buying up Heller stock. Weeks later, the acquisition took place and Samberg made $18 million. Mack, meanwhile, was cut into a Pequot deal that netted him $10 million.

In investigating this case, Aguirre sent a subpoena to Morgan Stanley for records of emails between Mack and Samberg. Now, remember, Mack by the time of the suspicious trades was no longer working for Morgan Stanley (he would return to be its CEO years later, but at the time, he had just stepped down from the presidency). Nonetheless, Aguirre wanted all the emails Mack had sent to Samberg and vice versa during Mack's first stint at Morgan Stanley. All he was looking for was proof that the two knew each other – and for some essentially circumstantial evidence about their level of chumminess.

Aguirre's theory had always been that the source of the Heller tip had been the Credit Suisse interview. He never believed that Mack somehow passed the tip to Samberg while he was still at Morgan Stanley.

Nonetheless, White called then-SEC Enforcement Director Linda Thomsen when Morgan Stanley received the subpoena, and tried to run a little game on the SEC. The SEC Inspector General later summarized White's testimony about that call:

White said she asked Thomsen "if we could accelerate the production of those emails [which were responsive to an SEC subpoena issued in the Pequot case] did she think the SEC might be in a position to say something more about Mr. Mack's exposure or not."

In other words, White proposed to Thomsen that she could speed up the response to the subpoena, if Thomsen in turn could review the emails and make a swift judgment about Mack's exposure based on that evidence – evidence that not even Aguirre thought would contain anything truly substantive about the insider trade.

Aguirre thought Mack got the tip in Switzerland. White had to know the tip could not have come from Morgan Stanley. She knew these particular emails would not show the source of the trade. Yet she wanted Thomsen to make a judgment about Mack's exposure based on this evidence. This is the sort of legal leprechaun trick that former regulators like White get paid by the banks millions of dollars a year for.

Two days after White's call to Thomsen, Morgan Stanley sent a CD full of documents over to the SEC – not to Aguirre, but presumably to someone higher up, possibly Thomsen. Again, the Mack case subsequently went away, and Aguirre was subsequently deemed a pain in the ass for complaining about this and fired. The SEC subsequently paid Aguirre a record $755,000 wrongful termination settlement.

More fun details about your new chief of the SEC. Do you feel safer? I know I do.

Matt Taibbi

http://www.rollingstone.com/politics...#ixzz2JYWWDiem