GAO Issues Recommendations for Improving SEC's Oversight of Revolving Door

By MICHAEL SMALLBERG

The Securities and Exchange Commission (SEC) should document its ethics advice in order to improve its oversight of employees who go through the revolving door, according to a report issued today by the Government Accountability Office (GAO).

As part of the Dodd-Frank financial reform legislation, the GAO was required to examine: 1) the extent to which employees leave the SEC to go work for SEC-regulated entities, 2) the SEC’s internal controls for managing revolving door-related conflicts of interest, and 3) potential options for improving how the SEC manages conflicts of interest.

Among other things, the GAO reviewed many of the same post-employment statements that we obtained through FOIA for our recent report on the SEC revolving door. The GAO also examined the SEC’s system for managing conflicts of interest in relation to similar programs at other agencies.

Here are some of the report's key findings (and check out our annotations of the report—click on the "notes" tab in the DocumentCloud viewer—further below):

• The SEC only recently instituted an agency-wide policy of asking departing employees for future employment information.


• According to SEC data reviewed by the GAO, 2,127 employees left the agency from FY 2006 through 2010. Of these departing employees, over one-third worked in occupations related to the SEC’s examinations and investigations, including examiners, accountants, economists, and attorneys.


• The GAO reviewed 825 statements filed between October 2005 and October 2010 by former employees indicating their intent to appear before the SEC on behalf of an outside party within two years of leaving office. These statements were filed by 224 former employees who went to work at 136 different entities after leaving the SEC, including financial companies and legal and consulting firms.


• The GAO also reviewed the post-employment histories from a sample of 150 former employees. Post-employment information was available for 64 of these employees. Of these 64 employees, 22 obtained employment at law firms, 15 at consulting firms, 13 at financial firms, and 14 at other entities.


• The SEC does not consistently document the ethics advice provided to current and former employees.


• The SEC’s policies for managing post-employment and conflict-of-interest issues are similar to policies at other agencies. But there are important differences. For instance, the Federal Reserve Banks maintain a database to review potential conflicts of interest, which involves tracking the employment history and banking relationships of examiners and monitoring their current staffing assignments.

• The GAO identified the advantages and drawbacks of several possible reforms, including developing a database to identify potential conflicts of interest, tracking the list of issues in which current SEC employees participate, extending the post-employment cooling off period, and expanding post-employment restrictions to include behind-the-scenes work, not just representational appearances. In the end, however, GAO’s main recommendation focuses on improving and standardizing the documentation of ethics advice provided to current and former employees.

Click the "notes" tab to see highlights from the report.

Michael Smallberg is a POGO Investigator.