This week's documents: 14 investigative reports by the Securities and Exchange Commission (SEC) Office of Inspector General (OIG)
Document dates: June 2008 - December 2009
Every Friday, POGO will strive to make one document available that we or others have obtained through the Freedom of Information Act (FOIA), especially documents that have not previously been posted online. Some of these documents will be more important than others, some may only be of historical interest— although relevance is in the eye of the beholder. POGO is doing this to highlight the importance of open government and FOIA throughout the year.
By MICHAEL SMALLBERG
A few years ago, we learned that most investigative reports issued by the Securities and Exchange Commission (SEC) Office of Inspector General (OIG) had not been posted online. In contrast to the OIG's audit reports, investigative reports often contain non-public information and privacy records, so they typically are not released to the public without approval and redactions by the Commission.
So in January 2010, we filed a Freedom of Information Act (FOIA) request with the SEC for all OIG investigative reports issued over a roughly two-year period.
The OIG has already provided summaries of these reports in its semiannual updates to Congress, and some of the investigations have already been covered in the press. Until now, however, the SEC had not released the reports themselves.
In the latest batch of investigative reports, you can read about a non-public draft of an SEC staff report on credit rating agencies that was apparently leaked to The Wall Street Journal, which we blogged about last week; an employee in the Office of Real Property and Facilities Support who unwittingly assisted in the operation of a Ponzi Scheme orchestrated by Jerome Carter, who claimed he could obtain amazing returns on investments by predicting the future; a Division of Enforcement employee who brought knives into the SEC building, explaining that he “always carried a knife, being from Texas”; an attorney from the Denver office who misused his official position to assist his girlfriend with private litigation; a Division of Enforcement attorney who failed to maintain active bar status; a Division of Trading and Markets employee who intentionally falsified her employment application; a Division of Investment Management employee who had excessive, unauthorized absences from duty; and an IT specialist who used SEC resources in support of a private business:
- Allegations of Failure by the SEC to Investigate (OIG-521), December 9, 2009
- Allegations of Improper Staff Conduct During Litigation and Collection (OIG-527), November 20, 2009
- Investigation into Unauthorized Disclosure of Non-Public Information (OIG-500), September 30, 2009
- Misuse of Government Computer Resources and Violation of the Standards of Ethical Conduct for Employees (OIG-504), September 30, 2009
- Misuse of Position, Government Resources and Official Time in Denver Regional Office and Home Office (OIG-519), September 30, 2009
- Possession of a Dangerous Weapon in a Federal Facility By Division of Enforcement SK-14 Employee (OIG-514), July 9, 2009
- No Abuse of Authority or Discrimination Against Native Americans at the San Francisco Regional Office (OIG-507), June 24, 2009
- Abuse of Time and Attendance by [Redacted (b)(7)(C)] Employee of the Division of Investment Management (OIG-492), March 18, 2009
- Allegations of Misconduct and Retaliation by Managers at the Los Angeles Regional Office (OIG-486), March 16, 2009
- Appearance of Lack of Partiality in the Performance of Official Duties (OIG-499), March 5, 2009
- Misuse of Government Resources and Official Time at Headquarters (OIG-488), November 7, 2008
- Failure to Maintain Active Bar Status As Required (OIG-498), September 11, 2008
- Misuse of Government Computer Resources and Official Time (OIG-479), August 14, 2008
- Falsification of Employment Application and Personnel Forms (OIG-493), June 24, 2008
Even though some of the reports are now several years old, they are still the source of ongoing controversy. An article in Bloomberg today describes how many current and former SEC officials, including some who were investigated by the OIG, have been pushing back against Inspector General David Kotz.
Former SEC Chairman Harvey Pitt has been one of the most vocal critics. In an email obtained by Bloomberg that was sent to about 90 securities lawyers, Pitt describes a “reign of terror” at the agency in which “[p]eople are afraid to write anything down, make decisions or even take notes of telephone conversations, because the current IG monitors everyone’s e-mails, including the chairman’s, and starts investigations at the drop of a hat.” George Canellos, Regional Director of the SEC’s New York Office, said that “[r]ight now if you close an investigation and, god forbid, you’ve missed something, you could be subject to significant criticism.” And an attorney representing an SEC employee who was accused in an OIG report of possibly violating insider trading rules pointed out that federal prosecutors decided to drop the case and stated that Kotz “is happy to grab headlines when it suits him, suggest that there is something wrong at the SEC and then have other people suffer the fallout.”
In response to this pushback, Kotz told Bloomberg he is unaware of any material error in his office’s reports. He also pointed out that “[w]henever an inspector general is doing his or her job properly, there is naturally some level of apprehension on the part of agency employees of a possible investigation.” This sentiment was echoed by several supporters of the OIG’s work. Harry Markopolos, who warned the SEC on several occasions about Bernie Madoff’s Ponzi scheme, noted that “[t]oo many IG’s are picked to be wallflowers and not do anything.” Senate Judiciary Committee Ranking Member Charles Grassley (R-IA) stated that Kotz has “shown independence in his willingness to take on controversial topics and present findings without any sugar- coating.” And Neil Barofsky, former Special Inspector General for the Troubled Asset Relief Program (SIGTARP), observed that “[t]here have been a lot of attacks against David, and that’s usually a pretty good sign he’s doing his job. If you want to be an IG and do the job right, you’re not looking to make friends.”
Kotz told Bloomberg that his office has issued 140 investigative reports since he joined in 2007, and that SEC management has agreed with 95 percent of the reports' 685 recommendations.
Michael Smallberg is a POGO Investigator.