Posted on Wednesday, January 19, 2011
J. Bradley Bennett, over the last two decades, has defended financial advisers, brokerage firms and corporate chieftains accused of everything from insider trading to accounting fraud.
Now, he’s switching sides.
On Jan. 3, Mr. Bennett became the top cop at Wall Street’s self-policing organization, the Financial Industry Regulatory Authority, or Finra.
“Any attorney in my space would jump at this opportunity,” said Mr. Bennett, 48, the new chief of the enforcement division. “This is a very important time in the history of American capitalism.”
Finra is at a crossroads, too. During the financial crisis, critics say, the organization missed the forest for the trees, cracking down on small boiler rooms in Florida while ignoring big warning signs on Wall Street.
“They missed a lot of serious problems while picking on issues that are not important in the scheme of things,” said Joseph Mays Jr., a former examiner at Finra’s predecessor, who currently advises small broker-dealers on regulatory matters.
So Mr. Bennett must try to repair the regulator’s reputation just when its authority may be expanding. Finra — formed in 2007 when the National Association of Securities Dealers merged with the New York Stock Exchange’s regulatory arm — may soon be charged with overseeing tens of thousands of investment advisers, on top of the 600,000-plus brokers already under its purview. Finra is lobbying the Securities and Exchange Commission to get this power.
But the regulator’s harshest critics contend it has not earned this added responsibility. At the height of the financial crisis in 2008, Finra filed 1,073 disciplinary actions, down from 1,204 two years before. Last year, Finra brought 1,310 cases, but levied $41 million in fines, roughly half what it collected in 2006.
Mr. Bennett’s predecessor, Susan Merrill, the enforcement chief for about three years, defends Finra’s record.
“It’s unfair to evaluate an enforcement division solely by the number of cases,” Ms. Merrill said. “You have to judge the program on the cases they’re bringing and not count up the numbers.”
The enforcement staff under Ms. Merrill brought several cases against Wall Street firms for their role in selling auction-rate securities, debt investments that imploded during the crisis. It settled with more than a dozen firms, including HSBC, which agreed in April to pay a $1.5 million fine and to repurchase more of the troubled securities from customers.
Mr. Bennett says Wall Street can expect his 300-person enforcement team to be tough but fair. He plans to aim at dubious private real estate deals sold to small investors and monitor compliance with money laundering prohibitions. With Goldman Sachs selling $1.5 billion of Facebook shares to its wealthy clients, Mr. Bennett also wants to keep tabs on firms that offer shares in private technology companies.
“I’m going to try to streamline the processes that may be bogging down important matters,” said Mr. Bennett, who will direct Finra’s investigations. “A lot of things have been left undone that need to be dealt with.”
Mr. Bennett, a father of two teenage daughters who lives in suburban Virginia, began his legal career at the S.E.C. in the late 1980s, after graduating magna cum laude from the law school at Georgetown. He spent four years at the commission’s enforcement division, where he prosecuted insider trading and accounting fraud. An imposing presence at 6-foot-5, Mr. Bennett said he was eager to take on any case that ended up in court.
“You don’t ignore Brad when he stands up,” said James Doty, Mr. Bennett’s former colleague who last week was named chairman of the Public Company Accounting Oversight Board, the nation’s top accounting regulator. “He has an expansive, exuberant personality. He is not a mouse.”
Mr. Bennett’s experience as a regulator came in handy when he joined Baker Botts in 2001, after a nine-year stint at Miller, Cassidy, Larocca & Lewin. As the co-chairman of the white-collar and corporate investigations group at Baker Botts, Mr. Bennett often defended his clients on matters before the Justice Department and the S.E.C.
In one S.E.C. insider trading investigation, he defended Congressional staff members suspected of leaking confidential information about potential legislation to lobbyists and companies. Mr. Bennett declined to name the aides because the investigation closed without becoming public. He also helped lead an internal investigation into accounting fraud at Freddie Mac, the housing finance giant.
When the investment adviser Paul W. Eggers, the Treasury Department’s general counsel during the Nixon administration, was charged with selling bogus investments, he turned to Mr. Bennett. Mr. Bennett took the case, but Mr. Eggers was convicted of mail and wire fraud.
Mr. Bennett was also Finra’s preferred outside lawyer. Since 2003, he has dedicated a third of his practice to Finra. He notably represented the regulator during an S.E.C. investigation into problems at the American Stock Exchange, an affiliated company.
“He’s a team player, and the Finra staff will react well to him,” said Barry Goldsmith, a partner at the law firm Gibson, Dunn & Crutcher, who has known Mr. Bennett from their days together at the S.E.C. “I think Brad will bring a lot of energy to the job.”
Mr. Bennett — an avid game hunter who had ducks mounted in his office at Baker Botts — warns that he will not go easy on the industry as he switches from defending financial firms to prosecuting them. In fact, he says he believes his experience with Wall Street will give him a unique perspective.
At Finra, Mr. Bennett will collect a paycheck close to that of other executives at the regulator, who typically earn around $700,000. His predecessor earned $1.28 million in 2009, according to filings.
“If anyone thinks I’ll be an advocate for soft-touch enforcement, they are going to be disappointed,” Mr. Bennett said. “If someone stepped over the line, they’re not going to get any sympathy from me.”
By BEN PROTESS, THE NEW YORK TIMES