SEC-Wall Street 'Revolving Door' on Hiatus?

NEW YORK ( TheStreet) -- Wall Street may have lost some of its chutzpah, at least if a couple of recent high-profile legal hires provides any indication.

It may be a coincidence, but it seems worth noting that neither John Finley, who Blackstone Group ( BX) said Wednesday would become its new chief legal officer, nor Frank Barron, his new counterpart at Morgan Stanley ( MS) as of July 1, have ever worked for the Securities and Exchange Commission.

There has been a strong tradition in recent years of SEC officials leaving their positions to join Wall Street firms. Some prominent examples include Gary Lynch, who ran the SEC's enforcement division in the late 1980s, before turning up at Credit Suisse ( CS) and Morgan Stanley in the past decade. Another top SEC enforcer, Stephen Cutler, left the commission in 2005 and became general counsel of JPMorgan Chase ( JPM) about a year later. Richard Walker left the same job in 2001 to become Deutsche Bank's ( DB) general counsel.

Goldman Sachs ( GS) is better known for the executives who leave the company to go into government, but the road between Goldman and Washington moves in both directions, as Goldman's hire of former Obama White House counsel Gregory Craig demonstrated in April.

But some members of Congress lately have expressed frustration with what has become known as the "revolving door" between Wall Street and Washington. Last month, Sen. Charles Grassley (R., Iowa) wrote to SEC Inspector General David Kotz asking him to summarize his efforts to address the issue, and to look into the recent departure of Elizabeth King, an SEC official who left to work for Getco, a high-frequency trading firm. The SEC is investigating issues related to the May 6 "flash crash," which has brought heightened scrutiny upon high-frequency trading.

Kotz replied two days later with a letter highlighting past and present investigations, including one in which his office found that Linda Thomsen, former SEC enforcement chief, gave "some assurances" to JPMorgan's Cutler on the weekend in 2008 before JPMorgan bought Bear Stearns about ongoing and potential investigations into Bear Stearns, though "not the broad assurances he was seeking."

Kotz's office reached its conclusions about seven months after Thomsen left the commission over her department's failure to catch Bernie Madoff.

Kotz also stated in the letter that his office is pursuing an inquiry into "allegations ... that a prominent law firm's significant ties with the SEC, specifically, the prevalence of SEC attorneys leaving the agency to join this particular law firm, led to the SEC's failure to take apropriate actions in a matter involving the law firm." Kotz did not name the firm.

-- Written by Dan Freed in New York.

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