When Jay Clayton emerged as the Trump administration’s pick to run the Securities and Exchange Commission three years ago, Wall Street embraced the idea of having a top regulator who didn’t come from politics or government enforcement.
Now Mr. Clayton, a former deals lawyer on Wall Street, appears headed for the ultimate merger of those worlds. President Trump and Attorney General William Barr have picked him to replace Geoffrey Berman, whom, according to Mr. Barr and at his request, Mr. Trump fired on Saturday as the U.S. attorney in Manhattan.
Mr. Berman said he would leave office immediately.
The move inserts Mr. Clayton into the kind of political drama the securities lawyer has avoided during a career mostly spent advising some of the biggest companies in the world. If the Senate confirms him, Mr. Clayton will take over the U.S. attorney’s office for the Southern District of New York, which has led investigations into some of Mr. Trump’s closest allies.
Mr. Clayton told SEC staff late Friday that he plans to remain at the agency until he is confirmed by the Senate, according to an email sent to agency employees.
Little in Mr. Clayton’s career—which colleagues say is exemplary—foreshadowed the move announced Friday night, which looks to drag him into the partisan warfare he has mostly avoided while at the SEC. Friends had expected him to move back to Manhattan at the end of Mr. Trump’s first term and perhaps return to Sullivan & Cromwell LLP, where he was a partner before entering government in 2017.
“Jay Clayton is a very cautious and straight-shooting person. And I was surprised that he would, if he did so knowingly, put himself into a situation like this,” said Hal Scott, a professor emeritus at Harvard Law School who runs an organization focused on regulation of the capital markets.
Two people close to Mr. Clayton said he has long believed that serving as U.S. Attorney in Manhattan would be a rewarding and exciting role, and that he is confident he would excel in the job and recruit strong lawyers.
Mr. Clayton was expected to leave government at the end of 2020. The idea of moving him to the top federal prosecutor role in Manhattan came together in the past couple of weeks, people familiar with the matter said. Mr. Clayton mostly worked in Washington during the quarantine period, the people said.
Mr. Clayton has appeared frequently on news channels to talk about the volatility in financial markets since the spread of the new coronavirus. Earlier this week, he appeared on CNBC and announced the SEC would have questions about the investor disclosures for a planned $500 million stock offering by bankrupt
Mr. Clayton was “pissed” about the idea of Hertz selling stock in bankruptcy that it said could be worthless, a person familiar with the matter said. Hertz withdrew its plans for the deal on Thursday.
A political independent, Mr. Clayton has courted some political relationships in the capital and often spends time at the private-membership Metropolitan Club, founded by Treasury Department officials in the 1860s blocks from the White House. The club, which has a bar, restaurant and swimming pool, boasts members who have worked at the highest echelons of government and the city’s elite law firms, many of which have offices nearby.
Mr. Clayton has avoided any major political conflicts, although some Democrats never fully trusted his independence from Wall Street, given his many years working with banks and private-equity managers at Sullivan & Cromwell.
Sen. Sherrod Brown, (D., Ohio) the top Democrat on the Senate Banking Committee, said at a hearing last year that the SEC under Mr. Clayton had “flown under the radar, but often the agenda has been the same—taking Wall Street’s side over and over, instead of standing with investors saving for retirement or college or a down payment.”
His path to the role of U.S. Attorney doesn’t appear to be clear. Senate Minority Leader Chuck Schumer on Saturday called on Mr. Clayton to withdraw from consideration. Sen. Lindsey Graham (R., S.C.), the chairman of the Senate Judiciary Committee, said he wouldn’t advance the nomination without the support of New York’s two Democratic senators, Mr. Schumer and Kirsten Gillibrand.
Historically, senators have had significant input into confirming judicial nominees in their state. Typically, both senators must return what is called a blue-slip before the Senate takes up a judicial or U.S. attorney nomination.
While he has never worked as a prosecutor, Mr. Clayton oversees the SEC’s civil enforcement agenda and has interacted with the U.S. attorney’s office for decades.
“What he doesn’t know he would learn quickly. And what he does know would be valued knowledge in that office,” said David Lawrence, a risk-management executive and former managing director at Goldman Sachs Group Inc. who earlier served as a federal prosecutor in Manhattan.
The SEC has a recent history of joining with Manhattan’s federal prosecutors on fraud investigations, including a blockbuster series of insider-trading cases involving hedge funds during the Obama administration. Mr. Clayton’s co-enforcement director at the SEC, Steven Peikin, is a former chief of the securities and commodities fraud task force in the Southern District. Mr. Clayton hired another highly regarded former Manhattan federal prosecutor, Marc Berger, to run the SEC’s New York regional office.
Mr. Clayton took over the SEC in May 2017, following an appointment by Mr. Trump. Widely expected to be a deregulator, he has instead been selective about pruning rules and, in some cases, increased restrictions on the brokerage and money-management industries.
He also oversaw an effort to rein in data and transaction fees charged by stock exchanges. That effort has been controversial and not completely successful, with the SEC losing two recent cases before a federal appeals court that said regulators lacked the authority to tinker with the fees charged by exchanges.
“He’s been a compromiser and not an ideologue,” said Mr. Scott, who urged Mr. Clayton to pursue restrictions on shareholder lawsuits against public companies, which the chairman declined to do.
People who have worked with Mr. Clayton over the years say he would never agree to a role that imposed any constraints on his independence or the autonomy of his staff.
“If that is the expectation of anyone, they will be severely disappointed,” said Mr. Lawrence, who has known Mr. Clayton for two decades.
Write to Dave Michaels at firstname.lastname@example.org
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