Senate panel presses SEC nominee Jay Clayton on conflicts

Jay Clayton, the Wall Street attorney tapped by President Donald Trump to lead the U.S. Securities and Exchange Commission, on Thursday defended himself against Democrats' charges that multiple conflicts of interest would force him to miss too many SEC votes.

Clayton, a partner at elite commercial law firm Sullivan & Cromwell, is expected to win confirmation easily, but Democrats on the Senate Banking Committee raised concerns about his professional ties to Wall Street, particularly with Goldman Sachs , a bank he represented during the financial crisis and that employs his wife, Gretchen.

His wife plans to resign from the bank if Clayton is confirmed, and Clayton's ethics agreement requires him to recuse himself on certain matters.

In his testimony, Clayton said his Wall Street legal experience is a "strength," adding he did not think conflicts of interest will impede his ability to lead the agency that enforces federal securities laws and regulates U.S. stock, options and bond markets.

"As far as the extent of my practice and whether the recusals that would be required for potential conflicts will impair my ability to act as chair of the Securities and Exchange Commission, I do not believe they will do so," he said.

Clayton, who is not registered with any political party, also told the committee the Dodd-Frank financial reform law should be "looked at" to determine if it has achieved its goals. He added he did not have "any specific plans for attack" of the law.

Both the senior Democrat on the committee, Sherrod Brown of Ohio, and Massachusetts Senator Elizabeth Warren, expressed concerns that Clayton's Wall Street relationships posed a host of conflicts that may cause him to recuse himself.

Clayton told the panel that, if confirmed, he would not be able to vote on matters involving Sullivan & Cromwell clients for two years.

Clayton's client list has included Barclays , Deutsche Bank and the Royal Bank of Canada , as well as Bill Ackman's hedge fund Pershing Square Capital Management. He also represented William Erbey, former executive chairman of mortgage servicer Ocwen Financial Corp , who was forced to resign as part of a settlement stemming from an investigation into improper foreclosures.

Clayton’s potential recusals could be significant because the commission currently only has two sitting members: Democrat Kara Stein and Republican Michael Piwowar.

Without two additional nominees to round out the commission, every Clayton recusal could set up a situation where the two remaining commissioners would not be able to agree on passing regulatory or enforcement actions.

But Clayton stressed he did not see this as a major concern, saying most enforcement votes are "unanimous."

He also stressed he strongly believes in holding individuals accountable, saying it could be a greater deterrent to wrongdoing than coming down on corporations.

The SEC only has civil jurisdiction and cannot bring criminal charges or prosecutions.

The nominee said he would not show favoritism to Trump or anyone else in enforcing SEC rules. Trump, a real estate magnate in his private life, has had issues come before the commission and interacted with a previous chair, Harvey Pitt, Brown said.

Warren, a leader of the Democratic Party's liberal wing, pressed Clayton about potential information that billionaire investor Carl Icahn could receive in his role advising Trump on regulation.

Icahn owns a controlling stake in a refinery that could benefit from a change he has proposed to the U.S. biofuels program and has a 24.57 percent stake in Herbalife Ltd , which has been under federal regulatory scrutiny.

While Clayton acknowledged meeting with Icahn after he was nominated to discuss the role of activist investors, he was careful not to judge Icahn's roles as investor and White House adviser.

Violations of insider trading laws in general, he said, entail a "fact and circumstances analysis."

Committee Republicans led by Chairman Mike Crapo of Idaho pressed on how to engender capital formation, a goal the Trump administration has embraced.

Clayton laid out an overall vision of clear and lean regulation, saying complexity creates confusion and drives up compliance costs for companies.

(Reporting by Sarah N. Lynch and Lisa Lambert; Editing by Linda Stern and Jeffrey Benkoe)