Wells Fargo Hires SEC Enforcement Chief Two Weeks Before Representing Bank in Pending Cases

An enforcement branch chief in the SEC’s San Francisco office left the agency in May 2010 to become in-house counsel at Wells Fargo & Co. Less than two weeks after joining Wells Fargo, she filed six disclosure statements indicating she would be representing the bank in connection with pending enforcement matters, including probes conducted by her former SEC office. The case exemplifies the “revolving door” problem where senior regulators leave to work for entities they were recently investigating, raising fundamental questions about conflicts of interest and the integrity of regulatory enforcement.

Immediate Representation of Former Target

The former enforcement chief’s disclosure statements revealed she would immediately begin representing Wells Fargo before her former colleagues at the SEC, including on matters that may have been under her supervision just weeks earlier. The speed of this transition—less than two weeks from departure to representation—demonstrates how revolving door practices allow financial institutions to essentially hire their former regulators mid-investigation, potentially compromising ongoing enforcement actions.

Pattern of SEC Revolving Door

This case was highlighted by the Project On Government Oversight (POGO) as part of a broader pattern of SEC officials moving to represent firms they had recently regulated. POGO’s study of the SEC revolving door found that from 2001 through 2010, 419 former SEC employees filed 1,949 disclosure statements indicating their intent to contact the SEC on behalf of an employer or client. The revolving door between the SEC and the firms it oversees became so pervasive that it threatened the integrity of the regulatory system.

Institutional Capture of Financial Regulation

Wells Fargo’s hiring of a senior SEC enforcement official while under investigation demonstrates how large financial institutions use the revolving door to neutralize regulatory oversight. By offering lucrative employment to regulators, banks create implicit incentives for current SEC officials to avoid aggressive enforcement that might jeopardize future employment prospects. The practice transforms regulators into potential future employees, fundamentally compromising the adversarial relationship necessary for effective enforcement.

Significance

The Wells Fargo case exemplifies how the SEC revolving door operates as a systematic mechanism of regulatory capture. When enforcement officials know they may soon work for the institutions they regulate, their incentive structure becomes misaligned with public interest enforcement. The ability of regulated entities to hire their former regulators mid-investigation creates obvious conflicts of interest and suggests that enforcement decisions may be influenced by career considerations rather than legal merits. This pattern helps explain why major financial institutions rarely face criminal prosecution or severe penalties despite repeated violations—the officials who would bring such actions often become employees of the firms they were investigating.