A Firm Elizabeth Warren Wants Examined for Statements on Fiduciary Duty Reform is Where the SEC’s Tainted Former Exam Chief, Andrew Bowden, Landed as General Counsel

My druthers would be not to have to again turn the focus on Andrew Bowden, particularly since the matter at hand may be the result of his senior management ignoring his advice. But if individuals and firms are not held accountable for questionable conduct, things will never change for the better.

Readers may recall that Andrew Bowden looked like a potential hero of financial reform who turned out to have feet of clay. He gave a brutal speech, by regulators’ standards, in May 2014, describing how more than half the firms in private equity were effectively stealing from investors or engaging in other serious compliance abuses. But distressingly, mere months later, Bowden was walking his bold talk back even though it was inconceivable that there had been any meaningful change.

In March of last year, at a conference at Stanford Law School, in the Q&A section, Bowden not only made fawning remarks about private equity profits and returns, which is a violation of agency rules (officials are prohibited from endorsing investments) but worse, said he’d really like his son to work in private equity. The questioner shot back, “I’d love to hire your son, by the way. That’s a deal.” Even though this exchange could be depicted as friendly banter, it was way too close to looking like soliciting a bribe.

Three weeks after we broke that story, The SEC’s Andrew Bowden: A Regulator for Sale?, Bowden resigned.

Ironically, yesterday the day that the SEC officials again visited the visited Stanford Law School. And yesterday was the day that David Sirota reported that the company at which Andrew Bowden is now genera counsel, Jackson National Life Insurance (“Jackson”), is under the hot lights for their statements about pending regulatory reform. The reason Elizabeth Warren called for a probe of Jackson, along with three other insurers, is that their bleating to regulators about how proposed rules would ruin their business contradicted what they told investors. SEC rules prohibit making misleading or false statements.

From Sirota:

U.S. Sen. Elizabeth Warren on Thursday requested a formal Securities and Exchange Commission investigation into four financial firms, asking the agency to evaluate whether they violated securities laws in an effort to thwart a federal initiative aimed at protecting investors.

At issue is the Obama administration’s proposed rule that would require financial firms to put customers’ interests ahead of their own when advising them on investment decisions…

In her letter to SEC Chairwoman Mary Jo White, Warren notes that as part of their pushback against the proposed rule, financial firms have filed official comment letters with the Department of Labor registering their opposition to the proposal, and asserting that it would harm their business. But the Massachusetts Democrat argues that the statements of opposition in some firms’ letters conflict with other statements in which they downplay the effect of the rule on their enterprises….

— Jackson National Life Insurance Company President James Sopha told the Labor Department that the fiduciary rule would “be very difficult, if not impossible for financial professional and firms to comply” with — and that firms would be “unable or unwilling to afford the high compliance costs” that would come with it. The next month, though, the head of National Life’s parent company, Mike Wells, told investors that Jackson would benefit from the rule. He said: “My view on this DOL issue is, we will weather it well. We’ll come out on the other side, advantaged again. And Jackson has the capabilities, relationship, distribution, to build whatever product is appropriate under that set and adapt faster and more effectively than competitors.”

Some may see Warren as caviling, but in fact public companies have been dinged for making inaccurate statements about proposed regulations. Again from the article:

Ann Lipton, a Tulane University Law professor, noted that regulatory matters in particular have been an issue when it comes to legal questions about false statements.

“Companies have gotten into trouble in the past by falsely saying that regulatory proposals weren’t going to have an effect, and if that’s what’s going on here, the company could be opening itself up to serious liability,” Lipton told IBT.

The grey issue here is whether these false statements rise to the level of being securities fraud. The test is whether investors would be likely to consider the information as significant in making an investment decision. In the case of Jackson, its parent is the British Insurer, Prudential PLC. While Jackson is one of the biggest life insurers in the US, it is not the biggest subsidiary of Prudential PLC. So the question becomes whether this issue would be material to Prudential Investors.

The statement of the head of the parent, Mike Wells, suggests that investors do consider it to be material. First, enough analysts are apparently asking that he felt he had to address the issue. Second, his statement was not along the lines of, “Look, it would be better for everyone in the industry from an economic perspective not to be subject to this rule, but from the perspective of all of our international activities, we don’t think this will have a meaningful EPS impact either way.”

And what does this say about Bowden and Jackson? It’s inconceivable that Bowden, as a former SEC senior officer, did not draft the letter to the SEC objecting to the proposed fiduciary duty requirement. Indeed, helping Jackson fight that rule was almost certainly a major, if not the, reason for him being hired. And as we’ve pointed out, the revolving door has come to entail industry getting its hands on top experts who have insight into the inner workings of agencies in order to vitiate and minimize the impact of regulation. So narrowly speaking, Bowden did exactly what he was hired to do.

So we have some open questions. The execs at the parent company could not discuss the implications of the pending rule change with investors without getting input from the sub. One would also think the legal team at the parent would be aware of Jackson’s strategy with the SEC, at least on a general basis. So this looks likely to be the parent choosing to blow off SEC requirements in talking up its stock to investors; they are unlikely to have involved Bowden directly in preparation of the investor remarks. But the fact that no cared to work this issue through more carefully speaks volumes about the culture at Prudential PLC. If Jackson says in all seriousness, that (horrors) having their agents be subject to a fiduciary duty would wreck their business, and there’s no reason to think that Bowden’s letter does not represent what Jackson management believes, then how can anyone, most important the SEC and customers, believe the parent’s pious claim that Jackson adopt the new rules with alacrity and enthusiasm, even if only to get a competitive advantage? Bowden’s letter reveals the course of most profit is to find clever ways to skirt the new regs instead.

In the stone ages of my youth, public companies, particularly those in regulated industries, accepted that they’d have to navigate through the rules or get them changed rather than ignore them and see if anyone would sanction them. Even worse, former regulators are actively enabling this behavior. As we showed last year, there are plenty of examples of ex-SEC officials who are openly contemptuous of the agency and are helping to promote a culture of lawlessness. So Warren’s persistence in naming and shaming is an effort to move public opinion and create a powerful counter to this concerted effort to define deviancy down.