The appointment of Robert E. Rice to chief council of the Securities and Exchange Commission would be entirely unexceptional were it not for Eric Ben-Artzi.
But it just so happens that both Rice and Ben-Artzi are former employees of Deutsche Bank who are entangled in a whistle-blower case currently before the SEC.
Last year, Ben-Artzi, a former risk manager at Deutsche Bank, alleged financial and accounting improprieties at Deutsche Bank." In a statement jointly released by the law firm representing him and the Government Accountability Project, Ben-Artzi alleged that Deutsche Bank failed to properly value credit derivatives on its books between 2007 and 2010 and that this alleged misreporting allowed the bank to hit its earning estimates.
During the time frame covered by Ben-Artzi's allegations, Rice was serving as head of governance, litigation, and regulation for the Americas at Deutsche Bank.
Ben-Artzi was laid off from Deutsche Bank in November 2011 and reported his allegations to the SEC through the Whistleblower Program established by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Two other Deutsche Bank employees also made complaints to the SEC. The complaints were first reported in the Financial Times in December. Both GAP and Ben-Artzi's representatives at Labaton Sucharow declined to comment, citing ongoing litigation.
There has long been a revolving door between the SEC and Wall Street, with many current and former financial regulators moving from prosecuting and watching Wall Street banks to defending them at white-collar law firms or working for the firms themselves and vice versa. Rice actually worked with his new boss, SEC chairman Mary Jo White, at the U.S. Attorney's Office in New York's Southern District.
White herself worked with several banks and financial executives in her time at Debevoise & Plimpton, including JPMorgan Chase, UBS, and former Bank of America CEO Kenneth Lewis.
Rice is the third Deutsche Bank executive since 2001 to hook up with the SEC for a stint. Robert Khuzami was Deutsche Bank's general counsel in the Americas before moving to becoming the SEC's head of enforcement in 2009. He resigned earlier this year before White was nominated as SEC chair in late January. Richard Walker, Deutsche Bank's current general counsel, worked as the SEC's director of enforcement from 1998 to 2001.
In a statement, the SEC said that Rice "will serve as a senior legal and policy advisor to the Chair and provide advice and counsel on a wide variety of regulatory matters."
Evidence on whether the so-called revolving door between regulators and legal defense affects enforcement outcomes is mixed. One study presented in 2012 by a group of business school professors looked at 284 enforcement actions over fraudulent financial reporting by 336 SEC lawyers. The study found that lawyers who left the SEC to work at law firms that defend clients against the SEC were actually more aggressive. The authors said that the evidence showed lawyers "exert more enforcement effort to showcase their expertise" as opposed to try to curry favor with future employers.
But a report released early this year by the Project on Government Oversight claimed that former SEC lawyers "routinely help corporations try to influence SEC rulemaking, counter the agency's investigations of suspected wrongdoing, soften the blow of SEC enforcement actions, block shareholder proposals, and win exemptions from federal law." POGO also claimed that the earlier study examined "only a sliver of the SEC's work" by looking exclusively at enforcement actions for fraudulent financial reporting instead of how the SEC either did or didn't pursue cases that stemmed from the financial crisis or investigations that never resulted in charges being brought forward.
For its part, an SEC spokesman told BuzzFeed, "We have a robust system in place to avoid even the appearance of partiality in our work."