Former SEC Chair’s shift at Promontory Financial raises questions about revolving door

Last month former SEC Chair Mary Schapiro made an unexpected change to her employment in the private sector, moving from an executive position to an advisory role at Promontory Financial, the regulatory consulting firm that both services Wall Street’s compliance needs and serves at the top tier revolving door destination for former financial regulators. While it was Schapiro’s initial move to Promontory that sparked murmurings about the regulatory revolving door, her decision to move out of what was surely a lucrative position within the company is curious. The New York TimesDeal Book reported that while at Promontory, Schapiro imposed tight regulations on herself, pledging to never represent a client before a government agency:

And after spending her entire career as a regulator — at the S.E.C., the Commodity Futures Trading Commission and the Financial Industry Regulatory Authority, Wall Street’s self-regulatory group — Ms. Schapiro privately remarked to friends that consulting work was not the right fit.

Schapiro’s self-imposed standards are notable as the Promontory model clearly relies on hiring ex-regulators to work for businesses they once had oversight over, and to represent those businesses before regulatory agencies where they used to work.

Founded by former Comptroller of the Currency Eugene Ludwig, Promontory Financial is a regulatory, compliance, and crisis-management consulting firm, which bills itself as uniquely positioned because of its wealth of “knowledge of legislative, regulatory, and judicial practices that shape financial services regulation” (Read: it’s wealth of well-connected, former regulators on the payroll). Promontory’s client list, a whos-who of the troubled financial market, including Bank of America, Wells Fargo, and PNC, indicates that Ludwig’s billing sells. Promontory staff represent their clients during meetings on proposed federal regulations, often before the agencies they used to work for or lead. According to Sunlight’s “Dodd-Frank” meeting log tracker, Promontory sat in ten different meetings on behalf of their clients.

..when it comes to representation before rulemaking agencies, industry lobbyists, who have the resources to hire the most well-connected experts, can use both their connections and policy knowledge to drive the rulemaking process on behalf of their clients.

According to the New York Times, as of 2013, a full two-thirds of Promontory’s 170-strong staff came from federal regulatory agencies. The maps below draw on information from the LittleSis database and show the fruits of Promontory’s revolving door ties to the SEC, OCC, and FDIC. You can find more connections on the interlocks page of Promontory’s LittleSis profile.

Promontory and the SEC
This is only a selection of Promontory’s OCC connections
Promontory connections to the FDIC

The connections to the FDIC are particularly interesting since one of Promontory Interfinancial Network‘s primary offerings is CDARS, a financial instrument used to circumvent FDIC insurance limits by splitting multi-million dollar deposits into amounts under $250,000 and spreading them out over a network of banks. Promontory Interfinancial Network is a subsidiary of Promontory Financial.

With so many federal agency connections, how can anyone claim that Promontory is not angling for influence? Promontory Founder Eugene Ludwig chalks it up to personal responsibility:

I can’t say, or would not say, there’s never been an occasion in which one of our people didn’t advocate for something. But I will say this: We are adamant that nobody here take a position that they don’t believe in.

Does Mary Schapiro’s move away from her role at Promontory imply that she does not believe in the firm’s approach? Perhaps Ludwig finally found a former who was too much regulator for an industry where trading on clout is the name of the game.