In the aftermath of the financial crisis, Securities and Exchange Commission (SEC) Chairman Mary Schapiro and other senior SEC officials have been working hard to restore the agency’s reputation as a tough cop on the beat protecting investors from Wall Street misconduct. But what about misconduct within the SEC itself?
In recent years, the SEC Office of Inspector General (OIG) has issued alarming reports on insider trading by SEC employees, retaliation against whistleblowers, and the agency’s failure to crack down on the Madoff and Stanford Ponzi schemes, just to name a few. In many cases, the misconduct is so egregious that the OIG recommends disciplinary action for the employees cited in its investigations.
However, it appears that some of the worst offenders named in the OIG’s reports have gotten off with relatively light punishment, if they received any punishment at all. POGO raised concerns about the SEC’s treatment of OIG disciplinary recommendations in a letter we sent yesterday afternoon to Chairman Schapiro.
We raised concerns about a letter Chairman Schapiro recently sent to Representative Darrell Issa (R-CA), Chairman of the House Oversight and Government Reform Committee, which included updated information on the SEC’s response to OIG disciplinary recommendations issued from 2008 to the present. We’ve also posted this updated information on our website, along with additional information from the OIG’s semiannual reports to Congress and from OIG investigative reports obtained through the Freedom of Information Act.
Here are a few highlights:
SEC employees and contractors rarely terminated for misconduct
From 2008 to the present, the OIG recommended disciplinary action for nearly 100 employees at the SEC. We counted 27 recommendations in which the OIG specifically urged the SEC to take disciplinary action up to and including dismissal. But it appears that only 11 employees and contractors were actually terminated or removed from their contract during this period. Many received lesser forms of disciplinary action, including counseling, suspensions, and reprimands. At least 16 employees resigned rather than face disciplinary action, including one former employee who ended up running for Congress. And the SEC took no action at all in the case of 10 employees, many of whom were found to have committed serious offenses.
It appears the SEC’s uneven response to OIG disciplinary recommendations, especially in the case of senior officials, has had a damaging effect on morale in some offices. For instance, Chairman Schapiro received a letter last year from an anonymous whistleblower at the SEC’s Los Angeles office who complained that a supervisor was not punished after he was caught viewing pornography. The whistleblower explained that the lack of discipline for the supervisor had created “an inherently hostile work environment for the entire LARO examination staff."
Disciplinary action still pending for employees who missed Madoff and Stanford Ponzi schemes
The SEC came under heavy criticism for its embarrassing failures to catch the massive Ponzi schemes orchestrated by Bernie Madoff and Allen Stanford. The OIG described these failures in great detail in two investigative reports, and recommended that the SEC take action against employees in the SEC Division of Enforcement and Office of Compliance Inspections and Examinations to ensure that these failures aren’t repeated.
The OIG issued these recommendations more than a year ago. Yet it appears the SEC still hasn’t taken final action to fully implement the recommendations. In the meantime, many of the employees who missed Madoff and Stanford’s schemes have moved on to high-paying jobs in the private sector.
No discipline for officials who retaliated against Ft. Worth whistleblowers
We’ve written a bunch about an OIG investigation into allegations that senior officials at the SEC’s Ft. Worth office retaliated against examiners who blew the whistle on a new program that would have required them to focus their attention on quick-hit, superficial examinations, diverting resources away from in-depth examinations of broker-dealers designed to uncover fraud similar to the Stanford Ponzi scheme. The OIG recommended that performance-based or disciplinary action be taken against the two officials.
However, the latest information provided by Chairman Schapiro indicates that the SEC took no action in response to the OIG’s recommendations. The Ft. Worth Star-Telegram has reported that the SEC took no action because it determined that the officials had “cleared their move with human resources.” This explanation prompted a scathing letter from Senator Charles Grassley (R-IA), a long-time champion of whistleblower protections and a frequent critic of the SEC. Senator Grassley stated that the agency’s explanation for not taking action against the Ft. Worth officials “would make a mockery of whistleblower protections throughout the government,” and concluded that the SEC’s response to the OIG’s recommendations was “extremely disturbing.”
Recommendations for improving SEC accountability
POGO urged the SEC to take steps to implement OIG disciplinary recommendations in a more timely fashion, or to provide a public explanation when it decides that no disciplinary action is warranted. We also recommended that the SEC make it a goal to release and post OIG investigate reports that are of public interest or have already been released through the Freedom of Information Act. Finally, we called on the SEC to take immediate steps to close out the recommendations from the OIG’s reports on Madoff and Stanford, and to reconsider its decision to take no action against the Ft. Worth officials cited for taking retaliatory action against whistleblowers in their office.
SEC oversight hearings scheduled for tomorrow
Chairman Schapiro has a busy day on the Hill tomorrow—in the morning she’ll be testifying before the Senate Banking Committee to discuss the SEC’s FY 2012 budget, and in the afternoon she and other SEC officials will be testifying at a joint subcommittee hearing of the House Oversight and Government Reform Committee on “Financial Management, Work Force, and Operations at the SEC: Who’s Watching Wall Street’s Watchdog?” In addition, the SEC division heads will be appearing before a subcommittee of the House Financial Services Committee to discuss the agency’s FY 2012 budget request.
As Chairman Schapiro and other SEC officials make the case for increased funding so that they can meet their expanded responsibilities under the Dodd-Frank financial reform law, we hope these committees take a hard look at the SEC’s response to OIG recommendations for cracking down on waste, fraud, and abuse and improving the agency’s effectiveness. Especially at a time when the SEC is encouraging outside whistleblowers to come forward with information on misconduct in the securities industry, we think it’s more important than ever for the SEC to hold wrongdoers accountable within the agency.
Michael Smallberg is a POGO Investigator.
Related:
- Newly Released IG Report Details Another Botched Examination by the SEC
- 5 Notable Excerpts from the Unposted SEC IG Reports
- Unposted Inspector General Reports Showcase SEC Misconduct
- Long Island Congressional Candidate Cited for Giving Up JPMorgan Whistleblower
- IG Slams SEC for Inexcusable Delays in Cracking Down on Stanford Ponzi Scheme
- The SEC at Its Worst
Here's someone worse than Madoff: http://texsquixtarblog.blogspot.com/2009/04/who-is-worse-bernie-madoff-or-rich.html
The FTC isn't any better than the SEC, a bunch of overpaid paper-pushers.
Posted by: Tex | Mar 09, 2011 at 05:57 PM