Luis A. Aguilar occasionally sounds more like someone from the Occupy Wall Street movement than a former corporate lawyer who has spent the past four years on the Securities and Exchange Commission.
Aguilar, a Democrat, has often faulted his own agency — which is led by a fellow Obama appointee — for not doing enough to protect investors or punish financial misdeeds.
But this week, as SEC Chairman Mary L. Schapiro prepared to take up her high-priority plan to tighten regulation of money market mutual funds, which she says have the potential to destabilize the financial system, Aguilar essentially blocked her.
He stood with two Republicans on the five-member SEC in opposition to the proposal, or at least against moving forward with it now. Without his support, Schapiro abandoned her plan to put the proposal to a vote.
Schapiro called the overhaul of money markets unfinished business from the financial crisis of 2008, when the government backstopped money market funds to avert a meltdown.
But Aguilar had long signaled that he viewed the matter differently. It’s a subject on which he has personal history:
He formerly served as an executive of Invesco, a company that manages investment funds, including money markets.
On May 11, Aguilar and the two Republican commissioners issued a statement dissenting from a study that spelled out a rationale for tightening regulation of money market funds.
In an interview earlier this year, Aguilar made it clear that he was not sold on the potential regulations. He said he was concerned that tighter regulations could steer funds into markets that are not as open to the SEC, ultimately making them less regulated. He said steps that the SEC took to address money market funds in 2010 may have been sufficient.
Interviewed this week, Aguilar said he was concerned that, instead of reducing risk to the financial system, the plan could leave investors and regulators with less information. Before moving forward with the proposal, Aguilar added by phone and e-mail, the SEC should study the cash management industry as a whole and the potential for “a stampede to the unregulated markets.”
SEC spokesman John Nester declined to address the commissioner’s views, but he said the agency staff studied the potential for investors to move their money and concluded that if money flowed anywhere, it would likely go to bank products and U.S. Treasury securities, which are transparent and regulated.
The mutual fund industry has argued that changes the SEC was contemplating would be damaging to money market funds and investors who depend on them.
Aguilar’s background raised questions among investor advocates when Senate Democrats promoted him for a seat on the SEC during the George W. Bush administration. The SEC polices and regulates much of Wall Street, including the stock markets, and is responsible for ensuring that publicly traded corporations make proper disclosures about their finances. The fear was that Aguilar would be too easy on corporations.
But after joining the SEC in 2008, Aguilar won praise from some of those early skeptics.
Damon Silvers of the AFL-CIO described himself as one of the converts.
“I can’t think of a circumstance in my career where I more completely misjudged somebody,” Silvers said in an interview this spring. As it turned out, Silvers said, “Luis was a really fearless advocate of investors in the public interest.”
Aguilar has voted against SEC settlements with alleged wrongdoers on the grounds that the penalties were too weak. Last year, he publicly wished for a future in which the staff “brings cases that have obvious deterrence value.”
In February, he accused fellow commissioners of breaching their responsibility under the law by appointing a financial watchdog who had “no demonstrable record” of standing up for investors.
Weeks later, he urged the SEC to force corporations to disclose how they spend shareholders’ money to promote the election or defeat of political candidates.
Although the Supreme Court in 2010 unleashed such spending, it said the government could require corporations to disclose it.
Aguilar implicitly accused the SEC of neglecting one of its basic duties. A “true investor’s advocate would be focused on whether shareholders and investors receive adequate disclosure,” he said.
Barbara Roper, director of investor protection at the Consumer Federation of America, said Friday that she has faith in Aguilar.
“He has a strong pro-investor record over the course of his career at the SEC,” Roper said, “and in light of that fact, I think people ought to be prepared to give him the benefit of the doubt that he’s voting based on genuine conviction about what’s in the best interest of investors.”
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