It had been two days since U.S. lawmakers negotiated all night to finish rules that would reshape the business of Wall Street. The 20-hour session left legislators, aides, lobbyists and regulators exhausted. Almost no one had a grip on all the details.
Then Annette Nazareth stepped in. That Sunday morning, she e-mailed a dozen Securities and Exchange Commission officials about the bill that would become the 2,300-page Dodd-Frank Act.
Nazareth, herself a former SEC commissioner, represents the biggest banks and securities firms as a partner in the Washington office of Davis Polk & Wardwell LLP. She attached an annotated copy of the measure to her June 27, 2010, e-mail, marking changes made during the wee hours. It could be an invaluable tool for an agency hard-pressed to analyze the bill on a tight deadline.
“In case you would find it helpful,” Nazareth wrote to the group, many of them ex-colleagues.
Two hours later, SEC Chairman Mary Schapiro responded: “Thanks. We have our work cut out for us.”
Dodd-Frank, which took effect in July 2010, would shape the SEC’s agenda for the next two years as it labored to write some 100 regulations the law required. It also opened opportunities for Nazareth. With her connections and longtime SEC experience, she emerged as the preeminent legal advocate for financial services firms as they sought to scale back the new rules.
With Nazareth on board, Davis Polk was hired as outside counsel on Dodd-Frank by the six largest U.S. banks and the Securities Industry and Financial Markets Association, the Wall Street trade group, according to the law firm’s website. The firm also performed work for foreign lenders including Credit Suisse Group AG (CS:US) and Deutsche Bank AG.
Nazareth’s e-mails to Schapiro and then-SEC General Counsel and Senior Policy Director David Becker, obtained through a Freedom of Information Act request filed by Bloomberg News, demonstrate how lobbyists and lawyers draw on bonds they formed in government service to gain access for clients, and how they work to maintain those ties.
It’s “a real advantage” to send a familiar face into the agency, said Adam Pritchard, a University of Michigan law professor and ex-SEC lawyer. “If I’m a client, I’m very pleased. I’m willing to pay top dollar for that.”
Rather than making specific policy requests, Nazareth’s messages asked for meetings, offered her firm’s products and opined on the debate in Congress. She told Becker the prospect of a consumer finance protection agency made her “feel ill” and that she’d asked Sifma, the Wall Street trade group, to “trash” a proposal for an investor advocacy office at the SEC.
Officials routinely leave federal agencies, Congress and the White House to work for the industries they once supervised. While that path is well-trod and legal -- with some time restrictions -- it still provokes handwringing in Washington. Nazareth’s communications provide an inside look at what happens when the revolving door spins.
Nazareth, 56, declined to discuss specific e-mails. She said that people like herself who have worked for both sides are valuable because they can “better translate to their clients” what the SEC is trying to achieve.
“It’s unfortunate where we are in an environment now where everybody thinks that is nefarious,” Nazareth said.
Nazareth added that she “absolutely” doesn’t get favorable treatment.
“I am not batting a thousand, let’s put it that way,” she said. “And I respect that.”
Nazareth and her colleagues at Davis Polk played a central role as the financial industry shaped its Dodd-Frank priorities, helping write more than 80 comment letters to regulators. The firm’s clients, including Sifma, JPMorgan Chase & Co. (JPM:US) and Bank of America (BAC:US) Corp., targeted rules such as the so-called Volcker ban on proprietary trading, arguing it could create excessive burdens on banks, choke off business and hurt the economy.
The Volcker rule has yet to be completed, along with other key Dodd-Frank components such as swap-trading and mortgage regulations, meaning the success of the banking pushback won’t be fully measured until next year at the earliest.
In May, Nazareth was named as the top woman lawyer in financial regulation at the Americas Women in Business Law awards in New York. Public disclosures from the SEC also underline her clout. In 2009 and 2010, she attended 11 meetings with Schapiro -- twice as many as any single competitor in the law and lobbying business -- according to the chairman’s appointment calendar. Since Dodd-Frank was enacted, Nazareth has taken executives from firms including Goldman Sachs Group Inc. (GS:US) and Credit Suisse to the SEC, agency memos show.
Nazareth has also attended meetings at the Federal Reserve and represents clients at the Commodity Futures Trading Commission, where she has met with Chairman Gary Gensler among other officials, according to public disclosures.
Lynn Turner, a former SEC chief accountant who is critical of the banks’ agenda, said that Nazareth is “at the top of that list of influential attorneys” who have access to regulators as former SEC officials.
John Nester, an SEC spokesman, said those who used to work at the commission don’t get special access to the chairman. Schapiro “knows a lot of people in government, law, academia and consumer advocacy” and it’s not surprising that she e-mails and meets with some of them, he said.
“In the end, whether she or anyone in the agency agrees with a particular viewpoint or a specific request depends on whether it furthers the mission of the agency,” Nester said.
In her e-mails, Nazareth blended the personal and professional. For instance, she sympathized with Schapiro over a “frustrating” New York Times article in one message, and in another offered to sell the SEC a Davis Polk Web product “at an appropriate government rate.”
The overlap was sometimes evident in Nazareth’s salutations, which varied from “Dear SEC friends” and “Dear Mary and David” to “Hello All.” On March 10, 2010, for example, she wrote to “Chairman Schapiro” asking if she’d take a meeting with Credit Suisse “to discuss the SEC’s concept release on equity market structure.” After Schapiro agreed, Nazareth wrote back: “Fantastic, Mary!”
Schapiro answered the e-mails in a business-like way. The more numerous exchanges between Nazareth and Becker, who are friends, display an easy banter and a familiarity developed over the years.
Becker, now a partner at the Cleary Gottlieb Steen & Hamilton LLP law firm in Washington, declined to comment for this story. His biography on the firm’s website says he was “intimately involved” in financial regulatory reform at the SEC and “served a central role in the commission’s efforts to implement the Dodd-Frank Act.”
Early in the Dodd-Frank debate, in November 2009, Nazareth forwarded a summary of a Senate proposal to Becker, who noted that the actual text ran to 1,100 pages. “More nap time for me,” he wrote.
That prompted Nazareth to ask, “Yea, but what about me? No rest for the outside counsel.”
Becker responded about 25 minutes later with an offer to connect Nazareth with the agency’s newly named director of trading and markets, who had worked with Becker in private practice. “I’m going to encourage Robert Cook to call you for the scoop,” he wrote. Cook said through an SEC spokesman that he doesn’t recall discussing the Davis Polk document with anyone at the time.
Nazareth joined Davis Polk in September 2008, eight months after leaving the five-member commission. A graduate of Brown University and Columbia Law School, she began her career at the same law firm in 1981, then moved to Wall Street, working at Lehman Brothers Holdings Inc. and Salomon Smith Barney. (SPFSDX:US)
She joined the SEC in 1998 as an aide to then-chairman Arthur Levitt and the next year became director of the trading and markets division. (Levitt is a board member of Bloomberg LP, parent of Bloomberg News.) President George W. Bush appointed her to a Democratic seat on the SEC in 2005.
Nazareth is married to former Federal Reserve Board Vice Chairman Roger Ferguson Jr., now chief executive officer of TIAA-CREF, the manager of retirement funds for employees of nonprofits. Some e-mails refer to a party they host during the December holidays, where regulators and lawyers mingle.
In one note, Nazareth jokingly told Becker, “We expect Greenspan to lead us in a sing-along,” referring to former Fed Chairman Alan Greenspan. When Becker gave his regrets for her 2010 party he noted that, “In truth, I enjoy your holiday parties very much, not to mention seeing the host and hostess. It’s the only place I get to see famous economists.”
Nazareth isn’t a registered lobbyist -- a designation that is triggered under federal rules when a person spends 20 percent or more of his or her time engaged in “lobbying activities” for a client over a three-month period.
Other Davis Polk attorneys have filed documents with Congress registering as lobbyists on behalf of Sifma, the finance trade association. Sifma paid Davis Polk $1.3 million from November 2009 through October 2010, its tax filings show.
Nazareth said she doesn’t lobby. “I am not a door opener,” she said. “I am a substantive lawyer.”
Andrew DeSouza, a Sifma spokesman, declined to comment on Nazareth’s work.
There’s no indication Nazareth violated the federal ethics law that bars senior officials from representing clients before their agency for one year after they leave.
The law imposes a two-year ban on the most senior officials, including cabinet heads, the vice president and top members of the White House staff. President Barack Obama has expanded the two-year ban to his appointees, meaning that if Nazareth had been named by Obama she wouldn’t have been able to represent clients at the SEC until 2010.
“Every one of those commissioners should have the two-year ban,” said Richard Painter, who served as White House ethics lawyer in the Bush administration and is now a professor at University of Minnesota Law School. “They are in charge of a very powerful independent agency.”
Painter said the longer time-out would help reduce the influence that former SEC leaders might have on the people they worked with at the agency. That could diminish any advantage over others seeking the attention of the regulators.
The potential for a high-paying job after an SEC stint helps the agency recruit people with expertise in arcane areas. SEC pay scales generally can’t compete with industry; they top out at about $240,000 for staff and $156,000 for commissioners. At Davis Polk, profits per partner reached $2.3 million in 2011, according to the American Lawyer magazine.
The SEC gets “top-notch, high-quality people because it’s fun, because it’s challenging, because it’s exciting and because of the economic opportunities after they leave,” said David Gourevitch, a former agency enforcement lawyer who is now in private practice in New York.
Gourevitch, in comments echoed by other SEC alumni, said the back-and-forth between the industry and the commission doesn’t help ex-officials tip the scale toward their clients.
“There clearly is a revolving door,” he said. “I don’t see it influencing the results.”
Others aren’t so sure. Markets are so complex that regulators operate under an “informational disadvantage” with those they police, and it’s natural for SEC officials to listen more closely to lawyers and lobbyists who once worked at the agency, said Pritchard, the Michigan law professor.
Nazareth is recognized as an expert since she ran the SEC’s markets division before she served as a commissioner. “She knows how to pitch the arguments to the SEC in a way that they’re likely to respond to,” Pritchard said.
The e-mails reviewed by Bloomberg News begin in February 2009, just as Dodd-Frank was being crafted by the Obama administration and half a dozen agencies, and end in May 2011, when the public records request originally was made.
The time period coincided with an effort by Davis Polk, a New York-based firm that has long represented prominent Wall Street clients, to market its financial regulatory work. It sought to outdistance rival Sullivan & Cromwell LLP, people in the legal and banking industries say. Besides JPMorgan, Goldman Sachs and Bank of America, Davis Polk has done work for Citigroup Inc. (C:US) and Morgan Stanley (MS:US) on Dodd-Frank matters.
The correspondence illustrates how Nazareth tended her relationships and pushed for access. She was able to arrange an unscheduled meeting with Becker on June 24, 2009, when she e- mailed him from the SEC’s lobby: “My meeting has just ended with Trading and Markets. Do you have time to meet?”
Five minutes later, Becker replied, “I do.”
The next month, on July 11, Nazareth e-mailed Becker to offer “just some Saturday morning thoughts” about the Treasury Department’s draft of the regulatory bill, noting that she found it “very peculiar in places, causing me to believe that it was not written by the SEC or fully vetted.”
That included a section of the legislation concerning whether brokers should have a fiduciary duty to their clients. Sifma was fighting to make sure brokers weren’t covered by the same requirement as investment advisers.
“The language is broad enough to suggest that any compensation creates a conflict of interest,” Nazareth wrote. “Are these services now going to be provided for free?”
Becker responded that the draft was left vague on purpose, to give the SEC the authority to set the rules itself, rather than have Congress do it. Still, he told Nazareth: “This has been unbelievably messy.”
After a month had gone by without any e-mails, Nazareth contacted Becker at 5:46 a.m. on Aug. 13.
“You never call. You never write. Do you have any time for lunch?” she wrote. They met the following week at an eatery in Washington’s Union Station, which is connected to the SEC offices.
Nazareth and Becker sometimes discussed Schapiro. In October 2009, Nazareth wrote that the chairman appeared “really exhausted and downbeat” when she spoke to a New York conference sponsored by Sifma. “It must be very difficult,” Nazareth said in the e-mail.
Becker responded that it “is an impossible job” to be SEC chairman.
“The demands from various quarters are strident and irreconcilable, and the agency, as you well know, is a huge management challenge,” he added.
Nazareth’s e-mails to Becker and Schapiro increased when there were developments on Capitol Hill. On November 10, 2009, then-Senator Chris Dodd, a Connecticut Democrat, released his 1,100-page version of the regulatory bill.
The next morning Nazareth sent the copy of her firm’s bill summary to Becker, Schapiro and the four other SEC commissioners.
“Thanks, this is very helpful,” Schapiro responded.
Becker told Nazareth that the summary was “really good” and noted that it “should go into extensive detail about the inanity of the Investor Advocate,” a new SEC position dedicated to protecting investors.
“Give me time!” Nazareth replied. “I have also asked Sifma to trash it. They need to understand how terrible it could be for all.” The idea stayed in the bill, though the agency has yet to fill the job.
Congress continued to work on the bill into 2010. As lawmakers neared a deal to create a new consumer agency to police products like credit cards and mortgages, Nazareth forwarded Becker a news article about the agreement. “I am beginning to feel ill!” she wrote on March 1.
Toward the end of the month, when a later version of the Senate bill was released, Nazareth sent Becker and Schapiro another Davis Polk document outlining changes. “To assist all of my overworked friends at the commission,” Nazareth wrote. She passed along four more during the next few months.
President Obama signed Dodd-Frank on July 21, 2010, ending the legislative fight but opening a new front for banks and their lobbyists at the rule-making agencies. Nazareth marked the occasion with an e-mail to Schapiro, copied to Becker.
“Dear Mary, today is certainly a big day!” she wrote. “Congratulations on the end of the beginning.”
In the message, Nazareth offered to come in and give a demonstration of the Davis Polk Web product to track the regulatory developments.
Schapiro, responding the next evening, said she would defer to Becker on the meeting. “Hope you are well,” she concluded, prompting Nazareth to reply, “Thanks Mary, I always defer to David as well!”
Schapiro then replied: “It’s the safest thing to do!”
The SEC never purchased the product, the agency said.
The e-mails include matters beyond Dodd-Frank.
In February 2011, Nazareth forwarded Schapiro an exchange with New York Times reporter Edward Wyatt, who was writing an SEC story. Wyatt asked Nazareth to let him use a laudatory comment she had given him about Schapiro.
Nazareth asked Wyatt to include the name of her law firm. She objected to his identifying her solely as someone who “represents clients before the commission,” saying it might imply she was praising the chairman to benefit clients. “That is not the case,” Nazareth wrote. “I believe what I said.”
When she sent the e-mails to Schapiro two minutes later, Nazareth wrote: “The following seems to indicate that at least part of the piece will be positive.”
Schapiro replied: “Thanks so much. I have fingers (and toes) crossed.”
However, the story, released online later that day, Feb. 2, was mainly about how the SEC failed to properly account for its finances.
“It’s hard to imagine that I gave him an hour of my time, talked about real issues from market structure to rules and lots in between and this is what he produces,” Schapiro wrote to Nazareth.
Nazareth called the article “remarkably narrow and largely off the point,” and added that, “the good news is that it says very little and therefore will not get much attention.”
Schapiro then thanked Nazareth: “I really, really appreciate your comments.”
In an interview, Wyatt said he wrote “a tough story” and added, “What Annette Nazareth does with her e-mails is her decision.”
In another set of e-mails, Becker wrote Nazareth in November 2009 to “beg for help” in finding an attorney with a background in administrative law to work at the SEC.
Nazareth passed along a name and said, “we can give her a call to let her know that you would like to speak to her.”
Becker replied: “You are a peach.”
In March 2010, Nazareth sent Becker a message on a Saturday afternoon that said she had “been getting pressure from headhunters” to consider taking a new job.
“I told them you would be great,” Nazareth told Becker. “You may get a call.”
She signed off, “Your Faithful PR Department.”
Becker, responding two minutes later, demurred.
“That’s very flattering,” he wrote. “Probably out of the question.”
In February 2011, as Becker prepared to leave his post at the SEC and return to his law firm, he e-mailed Nazareth asking if she’d seen the press announcement.
Nazareth wrote back: “Yup! And I talked Mary off the ledge.”
It was the second time Becker had left the agency. He had been general counsel from 2000 to 2002 before rejoining the SEC in 2009 to be Schapiro’s top lawyer.
‘Degree of Influence’
Becker publicly addressed the revolving door at an Oct. 8, 2010, Cleveland conference on securities regulation, where he sat next to Nazareth on the panel. The two discussed the event in advance, the e-mails show. Becker’s remarks were prompted by suggestions from participants that the agency’s enforcers tend to go easy on firms represented by former SEC lawyers.
“When you’re an SEC alum, particularly someone who’s high- level, certainly your clients think you have a certain degree of influence,” Becker told the conference at Case Western Reserve University’s law school. “I have told them this: What you’re getting from me is good lawyering. I’m not in the influence business.”
While SEC officials may be more likely to return phone calls from former colleagues, “they don’t do anything for me that they wouldn’t otherwise do,” Becker said.
To contact the reporters on this story: Robert Schmidt in Washington at firstname.lastname@example.org; Jesse Hamilton in Washington at email@example.com.
To contact the editor responsible for this story: Maura Reynolds at firstname.lastname@example.org.