Darren Barbee at the Fort Worth Star-Telegram has uncovered some alarming new details on the Securities and Exchange Commission’s (SEC) Fort Worth Regional Office (FWRO)—the same office that has been investigated by the SEC Office of Inspector General (OIG) for failing to crack down on the Stanford Ponzi scheme and for retaliating against its own employees. Barbee reports that senior FWRO officials are ignoring the OIG’s recommendations, and may have even intentionally misled Congress.
To recap: the OIG found that examiners at the FWRO had flagged Stanford’s operations as a possible Ponzi scheme as early as 1997, and repeatedly referred the case to the enforcement division. But the SEC didn’t file charges against Stanford until February 2009, at which point investors had lost around $7.2 billion.
The OIG also found that in 2007, senior FWRO officials introduced a new quick-hit examination program that would boost the office’s stats, but would also divert resources away from the types of in-depth exams that were designed to uncover fraud like the Stanford Ponzi scheme. When FWRO Assistant Director Julie Preuitt raised concerns about the program—both internally and to officials in Washington, D.C.—she was given a letter of reprimand and transferred to non-supervisory duties. (Preuitt was also one of the examiners who had played an instrumental role in uncovering the Stanford Ponzi scheme).
When FWRO Branch Chief Joel Sauer complained about his supervisors and the quick-hit exam program to senior management in Washington, D.C., his complaint was referred to back to his supervisors—the same FWRO officials who had introduced the quick-hit program and retaliated against Preuitt. Shortly thereafter, Sauer received a performance counseling memo, found himself under daily monitoring by senior officials, and received a letter of reprimand, even though he had recently been given the SEC’s Examination Award of Excellence.
The OIG concluded that the retaliatory actions taken against against Preuitt and Sauer were, in part, due to the fact that they had raised concerns about their supervisors and the quick-hit exam program. The OIG submitted its findings to the SEC with a recommendation for possible disciplinary action against two senior FWRO officials, Kimberly Garber and Rose Romero.
But according to the Fort Worth Star-Telegram, the SEC declined to discipline Garber and Romero because they had “cleared their moves with human resources.”
POGO has obtained an email from an SEC official elaborating on this decision. The official makes the outrageous claim that Garber and Romero couldn’t possibly have retaliated against Preuitt and Sauer because they had checked with the human resources department before taking action, and because HR had no reason to retaliate against anyone. In other words, as long as HR gives the green light, management can pretty much do whatever it wants, and will be protected even if the OIG uncovers clear evidence of whistleblower retaliation.
Romero declined to answer any questions about disciplinary action or the OIG’s findings, and claimed that Preuitt has been given a prominent position as the chair of a regional oil and gas task force. But Romero later revised this statement to say that she is the one in charge of the task force.
To put this in context, we’ve prepared a document showing how the SEC often fails to act on the OIG’s recommendations for disciplinary action. And while Enforcement Director Robert Khuzami assured the Star-Telegram that all is well at the FWRO, other staffers painted a very different picture:
Some staff members, speaking on the condition of anonymity, said they have no confidence in senior leadership. In Fort Worth, the office’s strength had historically been in people like Preuitt, who were impolitic, willing to speak their minds and push co-workers and the D.C. bureaucracy to get things done. Management instead wants “tools to do away with people who have a dissenting opinion,” one employee said.
In addition, the Star-Telegram uncovered evidence suggesting that Romero misled Congress about the FWRO’s investigation of the Stanford Ponzi scheme. Romero testified at an August 2009 Senate Banking Committee hearing on regulatory and oversight issues related to Stanford. According to an unofficial transcript from the hearing, Romero told the Committee that the SEC didn’t launch an informal investigation into the Stanford Ponzi scheme until 2004. She conveniently neglected to mention the fact that Preuitt and the FWRO examiners had been looking into Stanford since 1997, and had referred the matter to the enforcement division on numerous occasions prior to 2004. She also made no mention of the fact that enforcement officials repeatedly rejected the examiners’ referrals, or that the head of FWRO enforcement left the agency and tried to represent Stanford on three separate occasions.
We’re deeply troubled to learn that a senior SEC official may have given such blatantly misleading testimony to Congress, especially given that the agency continues to stand behind Romero’s statements, which are directly contradicted by the OIG’s findings.
Kudos to Barbee and the Star-Telegram for their in-depth investigation of the systemic problems at the FWRO. Now it’s time for Congress to hold the SEC’s feet to the fire.