The day after President Trump nominated attorney Eugene Scalia as the next secretary of the U.S. Department of Labor, the gossip among securities industry lobbyists centered on one question: Will Scalia recuse himself from fiduciary matters?
Given Scalia’s involvement in defeating the DOL’s controversial fiduciary rule in 2018, the question has legs. He was the lead attorney in the successful case against the DOL’s fiduciary rule before the U.S. Court of Appeals for the 5th Circuit, which vacated the rule.
Many believe he has little choice and will do so. “There’s a lot of discussion about Scalia recusing himself,” a prominent securities trade group analyst said anonymously.
The son of deceased Supreme Court Justice Antonin Scalia, Scalia represented nine plaintiffs, including the Financial Services Institute (FSI), the Securities Industry and Financial Markets Association and the U.S. Chamber of Commerce in the case against the DOL’s fiduciary rule.
He is a partner in the Washington, D.C., office of Gibson, Dunn & Crutcher.
Previously, Scalia served as the top legal officer at the Department of Labor during the George W. Bush administration and before that was a special assistant to Attorney General William Barr during his first stint as the top law enforcement officer in the George H.W. Bush administration.
The DOL is currently working to reissue a fiduciary rule that would govern the conduct of advisors who work with retirement plan rollovers.
“There are rumors that proposed revisions to the fiduciary regulation will be issued before the end of the year, and possibly before Scalia is confirmed as the secretary of labor. So he may not be involved directly in the process of developing the proposal,” Fred Reish, a partner and chair of the Fiduciary Services ERISA team in the L.A. office of law firm Drinker Biddle & Reath.
“If the confirmation process moves more quickly, and the development of the proposal is delayed, then of course Scalia could, at least in theory, be involved. In that case, there would be ethical issues,” Reish said.
“For example, some people are saying that he should be required to recuse himself under the law. That may be a close question. But I think it is clear that it appears to be a conflict of interest, and for appearances purposes at least, he should recuse himself."