Mastering Money: Investment funds lawyer and former director at the Securities Exchange Commission takes us into his world
BY ANGELA BARBUTI
Norm Champ is a former director at the Securities Exchange Commission now in the private sector. Photo: Ireland Studios Photography + Motion
April is Financial Literary Month, so what better way to commemorate the occasion than to speak with someone who dedicates his career to advising in the financial sector.
A graduate of Harvard Law School, Norm Champ saw the aftermath of the financial crisis in 2008, and decided to lend his knowledge to the Division of Investment Management at the U.S. Securities and Exchange Commission. In his book, “Going Public: My Adventures Inside the SEC and How to Prevent the Next Devastating Crisis,” he gives readers a glimpse into the federal government. “Citizens have a right to know what it’s like inside the government and the good and the bad,” he explained. “I felt like there wasn’t a book out there about what it was like.”
Now, the Upper East Side resident is a partner in the investment funds group at Kirkland & Ellis LLP, assisting private investment funds with being in compliance with SEC regulations. He also gives back to his alma maters, teaching investment management law at Harvard Law, and sitting on the advisory council to the Woodrow Wilson School at Princeton, where he earned his bachelor’s degree.
How did your job at the SEC come about?
Throughout my career as a lawyer, I had worked on filings with the SEC and interacted with them on policy issues and had a lot of respect for them. And if you go back to the fall of 2008, all the federal regulators that were blamed for the crisis, the SEC easily was the one that took the most criticism. You know, they had failed to find Bernie Madoff, Allen Stanford, who was connected to another big Ponzi scheme. The five largest broker dealers under the SEC’s regulation, either vanished from the face of the earth, like Lehman, or taken over by banks, like Bear Stearns, Merrill Lynch, or became banks, like Goldman Sachs and Morgan Stanley. Their jurisdiction was changing, they were under a lot of criticism, and so it felt like, “Maybe this is a time where my expertise in investment management funds could be helpful to the Commission.” And so I started talking to some people there that I knew and one of them suggested that I apply for the job as head of examinations in New York, which I did and I got it. And I went there in January of 2010.
What were the challenges to your job there?
If you ever looked into organizational management or change management, when a respected organization like the SEC, that’s had a long run of success, has a problem, like Madoff…the reaction is not, “We need to change a lot of things.” The reaction is typically, “That was just an isolated failure.” And so the real challenge is working with people to make them understand that how things are being done contributed to what happened with Madoff. So how examination was done and how the examination function was organized, that those things actually were part of what happened in missing Madoff and Stanford. And when you have that realization, then the next step is, “How should we change how we’re doing things in order to make sure we don’t miss a Madoff and Stanford the next time.”
What is an initiative you started there that you’re most proud of?
Easily the most proud thing is in the examination division of the SEC, we created a manual for the whole division, which is more than 1,000 people across the country. It laid out policies and procedures for the examination program, something that would be very basic at a firm in the financial services industry. They would be required to have a manual like that. And the SEC didn’t have it, so we got one in place for the examination division, to try to put in place some processes and procedures so that there wouldn’t be another disaster like Madoff or Stanford. And if you just take a concrete example of that, in the case of Allen Stanford, which gets sometimes less publicity than Madoff…Stanford stole billions of dollars down in Texas. He was supposedly investing in high-yielding certificates of deposit at a bank in Antigua…There were concerns about how we were going to investigate in Antigua. So the manual we put in place says that if you are an examiner and believe someone is committing a fraud scheme, you must escalate that through channels all the way to Washington, if need be.
Tell us a story from your book.
Someone anonymously delivered to me an anonymous note accusing my predecessor of all sorts of misconduct. And they delivered that to me in a plain envelope with no return address. It was detailing all these accusations they made against the guy who had the job before me. They also included in the package, fax coversheets showing that the year before, the letter accusing my predecessor had been faxed to people in Congress, the press, the inspector general. So that was done, obviously, as a warning to let me know that if I tried to change too much, I could suffer the same fate. It’s obviously a sad and kind of disturbing story, that that would go on inside the government. And that was not uncommon; we got anonymous notes constantly accusing people of things.
In an interview with CNBC, you weighed in on cryptocurrencies. What is your opinion on digital currency?
My main message on cryptocurrency has been to urge the regulators to try to come up with some kind of consistent approach. I’m not an internet lawyer, so am not opining on whether cryptocurrency is a good or bad thing. But more, where the regulatory approach to it has been a complete patchwork. The IRS says it’s property; the Treasury Department says that it’s money so you have to have a money transfer license. The CFTC says it’s a commodity and the US Securities and Exchange Commission has said it’s a security. So we have four different interpretations by the regulators and I think it would make sense, again I don’t know about the pros and cons of it, to have a more unified regulatory approach.
Your future plans include writing a second book, “Mastering Money.”
Yes, I’m working on another book, which is really more of a personal finance book. It builds off the last chapter of “Going Public,” which talks about some of my recommendations to help people with basic decisions in their economic lives. We obviously spend almost no time teaching financial concepts in high schools or colleges, and yet we then turn the same people loose into the working world without a whole lot of guidance about what to do. So the book’s about how to make good decisions in personal finance early on in your career, when you’re younger so that you have a foundation as you get older.