Alex Oh, who was named head of the Securities and Exchange Commission's vaunted enforcement division last week, abruptly resigned, an early setback for Chairman Gary Gensler's tenure running the Wall Street regulator.
The surprise move, announced Wednesday in an SEC statement, means Mr. Gensler won't have his preferred pick leading what's arguably the agency's most important division. Melissa Hodgman, who was previously serving as acting director of the enforcement unit, will return to that role, the SEC said.
"A development arose this week in one of the cases on which I worked while still in private law practice," Ms. Oh, the first Asian American woman to head the enforcement division, said in an emailed resignation to Mr. Gensler that was reviewed by Bloomberg. "I have reached the conclusion that I cannot address this development without it becoming an unwelcome distraction."
Before joining the SEC, Ms. Oh was a partner at Paul, Weiss, Rifkind, Wharton & Garrison. At Paul Weiss her corporate clients included Exxon Mobil Corp. In that role she was defending the oil company against two-decade-old allegations that it supported killings and tortures in Indonesia, court documents show.
Her conduct during the litigation was called into question this week by the U.S. District Court judge overseeing the case. On Monday, Judge Royce Lamberth ordered Ms. Oh to demonstrate why she shouldn't be sanctioned for alleging that her opposing counsel was "agitated, disrespectful, and unhinged" during a deposition without providing evidence.
The enforcement chief is one of the most distinguished jobs at the SEC, with the director leading a group of 1,300 officials who investigate violations of securities laws and sanction individuals and firms for misconduct. Former heads of the division have gone on to be the top lawyers at global banking giants, including J.P. Morgan Chase, Morgan Stanley and Deutsche Bank.
Though Ms. Oh's departure represents a headache for Mr. Gensler, left-leaning advocacy groups seized on it to push him to appoint someone with fewer ties to firms the SEC regulates. The practice of the agency hiring corporate defense attorneys has long been a sticking point with progressive lawmakers including Elizabeth Warren, the Massachusetts senator and vocal financial industry critic.
"The SEC has failed the American people by repeatedly selecting Wall Street defense lawyers as directors of enforcement," Dennis Kelleher, president and chief executive officer of Better Markets, said in a statement. Ms. Oh's resignation "is an opportunity to break the SEC's corrupting practice of hiring Wall Street defense lawyers," the group said.