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WHEN: Today, Thursday, October 13th
WHERE: CNBC's "Power Lunch"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Securities and Exchange Commission Chairman Mary Jo White on CNBC's "Power Lunch" (M-F, 1PM-3PM ET) today, Thursday, October 13th. Following are links to video of the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000559192 and http://video.cnbc.com/gallery/?video=3000559187.
All references must be sourced to CNBC.
MATHISEN: THE SECURTY AND EXCHANGE COMMISSION TODAY APPROVING NEW MUTUAL FUND RULES TODAY, WHICH COULD HAVE MAJOR IMPLICATIONS ON THE WAY FUNDS OPERATE. THE RULES REQUIRE MUTUAL FUNDS TO SHOW THEY HAVE ENOUGH LIQUIDITY TO COVER ANY POTENTIAL REDEMPTIONS FROM INVESTORS. THE LATEST IN THE SERIES OF EFFORTS BY THE SEC TO INTENSIFY ITS REGULATION OF ASSET MANAGERS. JOINING US NOW FOR A "POWER LUNCH" EXCLUSIVE IS MARY JO WHITE, THE CHAIR OF THE SECURITIES AND EXCHANGE COMMISSION. CHAIR WHITE WELCOME GOOD TO HAVE YOU WITH US. WITHOUT WADING TOO DEEPLY INTO THESE TWO PROPOSED RULES, LET'S START WITH THE LIQUIDITY ONES. WHAT DO INVESTORS, SHAREHOLDERS, OF WHICH ROUGHLY HALF OF US ARE, WHAT DO WE NEED TO KNOW AND WERE WERE YOU TRYING TO ADDRESS SOMETHING THAT CAUSED YOU FEAR OR SOME PERCEIVED WEAKNESS IN THE WAY FUNDS ARE OPERATING. SO LET'S START WITH THE LIQUIDITY ONE.
WHITE: SURE, LIQUIDITY RISK MANAGEMENT RULE MAKING WE DID TODAY REALLY SWEEPING TRANSFORMATIVE I THINK FOR THE MUTUAL FUND INDUSTRY THE ASSET MANAGEMENT INDUSTRY AND THE INVESTORS IN THE FUNDS AS YOU SAY. THERE'S NOTHING MORE IMPORTANT TO INVESTORS IN MUTUAL FUNDS THAT THEY GET THEIR MONEY AND THEIR ASSETS WHEN THEY WANT TO HAVE THEM. SO, MANAGING THAT LIQUIDITY RISK WHEN SHAREHOLDERS WANT TO REDEEM IS OBVIOUSLY ESSENTIAL TO THE ASSET MANAGEMENT INDUSTRY. WHAT THIS RULES DOES, AS I MENTIONED TRANSFORMTIVE AND SWEEPING, IT REALLY FOR THE FIRST TIME IMPOSES REGULATORY CONTROLS OVER THOSE RISKS. I MEAN, OBVIOUSLY, WE SAW FOR EXAMPLE, WE WERE WORKING HARD ON THESE RULES BEFORE THAT, IN DECEMBER. THE EXAMPLE OF A FUND THAT WAS UNABLE TO MEET ITS REDEMPTION OBLIGATIONS BECAUSE OF WHAT WAS NOT OPTIMAL TO SAY THE LEAST LIQUIDITY RISK MANAGEMENTS. SO THESE SHOULD REALLY MAKE A REAL TRANSFORMATIVE DIFFERENCE.
MATHISEN: AS I READ QUICKLY THROUGH THE RELEASE, IT INDICATES THAT THE FUNDS WOULD BE CAPPED AT SOMETHING LIKE 15% OF THEIR ASSETS AS ILLIQUID AND THEY HAVE TO COME BACK DOWN TO THAT. WHO DOES THE CATEGORIZATION IS IT DONE BY THE FUNDS THEMSELVES AND ARE THEIR STRICT RULES TO DETERMINE THIS IS ILLIQUID . THIS IS SORT OF ILLIQUID –THIS IS LIQUID, THIS IS HIGHLY LIQUID.
WHITE: THERE'S VARIOUS GUIDANCE AROUND MAKING THAT DETERMINATION, BUT YES, THE FUNDS MAKE THAT DETERMINATION. WE'VE ENHANCED THE CONTROLS AROUND THAT. 15%. LIMIT FOR LIQUID INVESTMENTS. THE RULE REQUIRES THE CATEGORIZING OR YOU KNOW, BUCKETING OF HIGHLY LIQUID INVESTMENTS AND THE FUND NEEDS TO IMPOSE WITH BOARD APPROVAL. BASICALLY, A MINIMUM REQUIREMENT FOR HIGHLY LIQUID AND THEN TWO OTHER CATEGORIES OF MORE LIQUID AND LESS LIQUID, SO THEY CAN BOTH BETTER MONITOR AND THE BOARD CAN BETTER MONITOR THE LIQUIDITY RISKS AS CAN THE SEC. THE SECOND OF THOSE RULES IS REALLY OUR REPORTING RULES ENHANCING THE REPORTING OF INFORMATION. NEW AND DIFFERENT AND MORE AND MORE FREQUENT INFORMATION TO BOTH THE SEC AND INVESTORS.
MATHISEN: THAT'S THE SECOND PART OF IT. WITHOUT GOING DEEPLY INTO THAT, LET'S PIVOT IF WE MIGHT TO A COUPLE OF THINGS THAT ARE VERY TOPICAL. STARTING WITH WELLS FARGO. AS YOU MAY OR MAY NOT KNOW, SENATOR WARREN SAID LAST NIGHT THAT STUMPF IS LEAVING WITH ALL OF HIS ILL GOTTEN MILLIONS. HE SHOULD RETURN EVERY NICKEL HE MADE WHILE THIS QUOTE SCAM WAS GOING ON, AND FACE AN INVESTIGATION BY THE JUSTICE DEPARTMENT AND SEC. ARE YOU LOOKING AT ANYTHING WITH RESPECT TO WELLS FARGO OR TO MR. STUMPF PERSONALLY AND IS THIS AN AREA THAT THE SEC OUGHT TO BE, HAS BUSINESS GOING INTO?
WHITE: WELL, I CAN'T REALLY COMMENT ON ALL SPECIFICALLY ON WELLS FARGO. WE'RE OBVIOUSLY AWARE OF THE CALLS FOR INVESTIGATION. WE DON'T AS A MATTER OF POLICY, I THINK FOR PROBABLY PRETTY OBVIOUS REASONS, SAY WHETHER AND WHAT AND WHOM WE'RE INVESTIGATING. OBVIOUSLY, WE HAVE A MAJOR ENFORCEMENT DIVISION. JUST ANNOUNCED ITS IMPRESSIVE RESULTS FOR THE FISCAL YEAR 2016, SO, YOU KNOW, WE PAY A LOT OF ATTENTION REALLY ACROSS MARKET PARTICIPANTS. OBVIOUSLY, WELLS FARGO OR ANY OTHER BANK AS A BANK, YOU KNOW, YOU HAVE BANKING REGULATORS AS THE PRIMARY REGULATORS THERE, BUT I REALLY CAN'T GO BEYOND THAT.
SULLIVAN: THIS IS BRIAN SULLIVAN THANK YOU AGAIN VERY MUCH FOR JOINING US HERE. I WANT TO TALK ABOUT INSIDER TRADING BECAUSE THERE'S A VERY, VERY IMPORTANT CASE IN THE SUPREME COURT. I DON'T WANT TO GET TOO MUCH IN THE LEGAL WEEDS, BUT BASICALLY, THE SUPREME COURT HAS THE POSSIBILITY, THE OPTION, OF NOT BLOWING UP WHAT USED TO BE ONE OF THE MAJOR STANDARDS TO DETERMINE INSIDER TRADING, BUT WOULDN'T BE FAR OFF ACCORDING TO MANY PEOPLE I SPOKE WITH, IF THE SUPREME COURT CHANGES THE RULES REGARDING PERSONAL BENEFIT WHAT WILL THAT DO TO FUTURE AND CURRENT INVESTIGATION BY THE SEC INTO ALLEGATIONS OF INSIDER TRADING.
WHITE: YOU'RE RIGHT VERY IMPORTANT CASE. WE'RE OPTIMISTIC THAT THE COURT WILL ACT IN A WAY THAT REAFFIRMS THE LAW IN THAT AREA, WHICH WILL BE ENORMOUSLY IMPORTANT TO THE CONTINUATION OF YOU KNOW, WHAT IS AN EXTRAORDINARILY STRONG INSIDER TRADING PROGRAM AT THE SEC.
MATHISEN: HAS THE NEWMAN RULING, WHICH IS ANOTHER CASE, MADE IT HARDER FOR YOU TO BRING ACTIONS.
WHITE: IT'S A SIGNIFICANT CASE. I THINK SOME FOLKS THAT HAVE ANALYZED THIS DON'T REALIZE IT IMPACTED US LESS AT THE SEC THAN IT IS THE CRIMINAL AUTHORITIES, THAT WAS A CRIMINAL CASE IN MY OLD OFFICE. OUR BURDEN OF PROOF IS NOT AS HIGH SO WE HAVE REALLY CONTINUED OBVISOULY COGNIZANT OF NEWMAN. BUT TO BRING REALLY MULTIPLE INSIDER TRADING CASES WITHIN THE CONFINES OF NEWMAN. WE'VE ALSO MADE THE ARGUMENTS TO VARIOUS COURTS AT THE LIMITATIONS OF NEWMAN AND SO FAR, QUITE SUCCESSFULLY, BUT WE'RE WATCHING THE SUPREME COURT CASE VERY CLOSELY.
LEE: WHAT CAN YOU TELL US ABOUT THE REPORTS RECENTLY THAT LEON COOPERMAN IS IN TALKS WITH YOU GUYS. HE'S FIGHTING THE CHARGES, BUT AT THE SAME TIME, YOU GUYS ARE LOOKING AT PERHAPS SUSPENDING HIM FROM THE INDUSTRY FOR HOWEVER LONG A TIME.
WHITE: WELL THAT'S OBVIOUSLY IT'S A MAJOR CASE WE'VE RECENTLY BROUGHT. WE'RE IN LITIGATION. I DON'T WANT THIS TO BE TAKEN ONE WAY OR THE OTHER, WE DON'T TALK ABOUT WHEN WE'RE IN TALKS WITH CHARGED RESPONDENTS, DEFENDANTS, BUT IT'S A MAJOR, IMPORTANT CASE.
LEE: HOW IMPORTANT IS IT TO YOU THAT WHOEVER IS CHARGED WITH INSIDER TRADING, ADMITS WRONGDOING.
WHITE: I THINK IT'S CASE BY CASE. AS YOU KNOW, WHEN I FIRST BECAME CHAIR IN 2013, I CHANGED THE SEC'S SORT OF UNIFORM POLICY OF ALLOWING SETTLING DEFENDANTS. NEVER TO ADMIT OR DENY LIABILITY. IN CERTAIN CASES WHERE WE THINK PUBLIC ACCOUNTABILITY IS PARTICULARLY IMPORTANT WE REQUIRE THOSE ADMISSIONS OF WRONGDOING. BUT WE HAVE CERTAIN CRITERIA WE APPLY. THAT WE'VE ANNOUNCED IN TERMS OF AGREGIOUSNESS OF CONDUCT. THE POTENTIAL HARM TO THE MARKETS.BUT IN APPROPRIATE CASES IT IS VERY IMPORTANT TO GET ADMISSIONS.
SULLIVAN: SINCE YOU'VE BEGAN CRACKING DOWN ON INSIDER TRADING, HEDGE FUND RETURNS HAVE GONE DOWN THE DRAIN I DON'T KNOW IF THERE'S A RELATIONSHIP BUT SOME PEOPLE I'VE SPOKEN WITH ON WALL STREET HAVE SAID HAVE YOU NOTICED, SINCE THE SEC GOT TOUGHER, HEDGE FUNDS HAVE HAD A TOUGHER TIME MAKING MONEY. DO YOU THINK THERE'S A CONNECTION? HOW MUCH HEDGE FUND RETURNS IN THE PAST DO YOU BELIEVE WERE CONNECTED TO HAVING A WEE BIT TOO MUCH INFORMATION?
WHITE: I DON'T THINK ANYONE WOULD ARGUE SOME OF THOSE RETURNS AT SOME HEDGE FUNDS AND I DON'T WANT TO PAINT WITH TOO BROAD A BRUSH CAN BE ATTRIBUTABLE TO TRADING ON THE INSIDE INFORMATION WHEN IT'S NOT ALLOWED TO TRADE ON. THERE ARE INSIDER TRADING PROGRAM WITHIN OUR ENFORCEMENT DIVISION, HISTORICALLY AND CURRENTLY, IS A VERY, VERY HIGH PRIORITY. YOU WANT THOSE MARKETS FAIR AND HAVING A LEVEL PLAYING FIELD FOR ALL PARTICIPANTS, SO WE'VE ALWAYS MAINTAINED A VERY AGGRESSIVE PROGRAM AND THE SEC HAS MAINTAINED THAT EVEN IN THE FACE OF NEWMAN AS I THINK OUR RECORD SHOWS.
MATHISEN: JUST ONE QUICK QUESTION AND THEN I WANT TO TURN TO ANOTHER COMPLETELY RANDOM THING. IN THE COOPERMAN CASE, IS THERE A TIMELINE YOU HAVE IN MIND FOR RESOLVING IT? HOW QUICKLY MIGHT IT MOVE BECAUSE OBVIOUSLY, IT TAKES UP A LOT OF YOUR RESOURCES? MR. COOPERMAN'S BUSINESS OPERATES UNDER A CLOUD SO LONG AS THE INVESTIGATION IS OPEN.
WHITE: ONCE YOU DO A CASE, YOU BRING A CASE THAT'S BEING LITIGATED. YOU KNOW, IT REALLY IS OBVIOUSLY, WE'RE VERY VIGILANT IN PURSUING IT, BUT REALLY IS NOT UP TO US WHAT THE TIMETABLE IS, SO WE CAN'T PREDICT THAT.
MATHISEN: WE HAVE SOME VIDEO OF CHAIR WHITE HERE NOT LONG AGO, THE WASHINGTON NATIONALS BROUGHT OUT THE PETITE RIGHT-HANDER. THERE SHE GOES. TO BRING IN THE HEAT. WE'RE CALLING IT. HERE'S YOUR PITCH. AND IT'S HARD TO DO THAT. AND TO GET THE BALL, WATCH THIS. YOU GOT IT THERE.
WHITE: I DID GET IT THERE. I DID. MOST PRESSURE I'VE EVER BEEN UNDER IN MY LIFE. JUST SO YOU KNOW.
MATHISEN: YOU'RE A NATS FAN.
SULLIVAN: OR ROYALS. SHE'S FROM KANSAS CITY ORIGINALLY.
WHITE: I'M A YANKEES FAN AND A NATS FAN AND I'M ROOTING VERY HARD FOR THEM TONIGHT.
MATHISEN: ARE YOU GOING TO GO TO THE GAME?
WHITE: NOT GOING, BUT WATCHING.
MATHISEN: CHAIR WHITE, THANK YOU VERY MUCH.
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