Obama SEC Pick Lisa Fairfax in Limbo Because of Lack of Substance on Everything, Not Just Corporate Political Spending Disclosure

By David Dayen, author of the book Chain of Title: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud, available for pre-order now and releasing May 17.

My initial understanding of the vacancies on the Securities and Exchange Commission was that the selection of Lisa Fairfax last October to replace Luis Aguilar as a Democratic commissioner represented a victory for the reform coalition in the Senate. In fact I’ve written as such. Covington & Burling lawyer Keir Gumbs was the clear choice of the Administration, but his work advising issuers and investors about corporate disclosure of political activities, which opponents defined as advising CEOs to hide their political spending, did him in. Fairfax, a law professor at George Washington University, was reportedly put forward by Sherrod Brown and placed on a list of acceptable nominees by Elizabeth Warren (there’s some question now of whether or not that was the case). Swapping Fairfax for Gumbs was reported as a win for the reformers.

So why did Democrats block her from advancing in the Senate Banking Committee, probably dooming her nomination?

The reversal, or at least perceived reversal, turned on the same issue that tripped up Gumbs: a long-delayed measure to force public companies to disclose their political spending. But that masks a larger dissatisfaction with Fairfax, in particular for her vague, mushy answers both in public and in private meetings with Senators. She has earned a reputation as something of a cipher, whose presence on the SEC could be malleable depending on the other leadership.

First off, here’s the public source of the controversy. Banking Committee Chair Richard Shelby was all set to wave through Fairfax and the nominee set to fill the vacant Republican seat, former Shelby staffer, Mercatus Center fellow and all-around ideologue Hester Peirce. But Democrats held things up. From the AP via the NY Times:

Opposition from top Senate Democrats on Thursday stalled two of President Barack Obama’s picks for the Securities and Exchange Commission over whether the nominees support requiring publicly traded corporations to disclose political spending.

Nominees Lisa Fairfax, a Democrat, and Hester Peirce, a Republican, had waffled on the issue. Sens. Chuck Schumer, D-N.Y., and Elizabeth Warren, D-Mass., were among four members of the Senate Banking, Housing and Urban Affairs Committee opposing Obama’s choices. That led the chairman, Sen. Richard Shelby, R-Ala., to postpone a vote set for Thursday.

Schumer said the nominees are “fence-sitting” on whether to force corporations such as Koch Industries to reveal their political giving. Republicans succeeded in blocking the proposal in last year’s catch-all spending bill.

“The SEC needs commissioners who believe in and support campaign spending transparency,” Schumer said. “I hope that both nominees will reconsider their fence-sitting on this critical issue before the vote, and make clear that they will support an SEC rule that will help root out secret money from our politics.”

You wouldn’t expect Peirce to support the SEC rule. This was supposed to be a package deal to get the SEC back at full strength, where both parties support their respective nominees. But Democrats balked at Fairfax, ostensibly because she wavered on the political spending rule at her hearing in March, failing to give a clear answer. A snippet:

Senate Democrats have pushed SEC Chairman Mary Jo White to begin drafting a rule that would require the disclosure, while Republicans say the amounts are immaterial and shouldn’t have to be disclosed.

“I think there is certainly an argument to be made that it is material,” Ms. Fairfax said. Ms. Peirce said she would want to read the details of any disclosure requirement before taking a position.

Sen. Charles Schumer (D., N.Y.) later warned the two lawyers he was “leaning against both of your nominations” because their answers weren’t straightforward enough for his liking.

But Fairfax really wouldn’t be the holdup on any rulemaking; it’s Mary Jo White who hasn’t committed to a vote. There’s also the matter that Republicans got a rider in the budget bill that blocks the SEC from spending any funds toward finalizing the rule (Schumer thinks they can do that anyway and wanted Fairfax to say so, but she declined).

The bigger problem is that Fairfax’ plenty-of-wiggle-room answer on corporate disclosure was more the norm in her hearing than the exception. And there’s not a voluminous record to fall back on to guide the expectations of her views. Fairfax specialized at GW in research on shareholder activism and corporate board diversity, which is fine, but there’s very little else where she has a stated view. And in the hearing, according to most who watched it, she tried very hard to leave every possible position open, without much substance behind the remarks. Worse, I’m hearing that the behind-the-scenes interviews yielded little more than that, if anything. Her typical answer is that she would not “prejudge any issue without the benefit of full engagement” and “thoughtfully and carefully consider” all issues, and you could fit the substantive part of that answer in a thimble.

So this is a mushy-middle academic who could be a perfectly good Democratic commissioner, or not; it’s difficult to say. It would be easier for the reform wing to get behind her if she revealed anything of value on their issues. But the lack of substance combined with the non-answer on something Schumer takes pretty seriously (because he thinks the disclosure issue would help Democrats win the Senate) gives Fairfax very little of the support she needs.

The AP assures that confirmation of both nominees is likely, but I’m not sure why. It was highly unexpected for Schumer, Warren, Bob Menendez, and Jeff Merkley to come out against Fairfax’ confirmation. Shelby postponed the vote (which actually stopped a number of nominees, as Shelby attempted to vote them all out of committee as a bloc) without rescheduling it. In the meantime there are three members of the five-member SEC, which actually gives all three members nearly equal power. If any of them abstain from a vote, it dies for lack of a quorum. That means the lone Republican on the panel, Michael Piwowar, can block anything he doesn’t like, but so can Kara Stein. And with Mary Jo White effectively a moderate Republican, it’s probably more valuable that nothing can get any worse at SEC at this moment than that nothing can get any better.

The way out for Fairfax is to give a strong statement on political spending disclosure, which would put pressure on White. But nothing in Fairfax’ posture throughout her nomination suggests she would do that. The status quo doesn’t seem to give Democrats of any stripe too much agita, so the agency might operate with three commissioners through the election. Whether that is a good scenario or not depends on the next president.