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SEC Watchdog Investigating Staffers Over Disclosure
JUNE 1, 2009, 4:02 P.M. ET
By SARAH N. LYNCH
online.wsj.com
WASHINGTON -- The internal watchdog at the Securities and Exchange Commission revealed Monday his office is investigating several employees, including one top SEC official, after receiving complaints alleging they improperly disclosed nonpublic information.
One pending investigation by SEC Inspector General H. David Kotz comes in response to an allegation that a top SEC official improperly disclosed nonpublic information to a large investment bank.
In another case, Mr. Kotz reported that his office is investigating two enforcement attorneys for possibly disclosing nonpublic information from an internal SEC database to a corrupt FBI agent and short-seller who was later convicted of fraud, racketeering and conspiracy.
Then, in yet a third case, the inspector general said he is looking into whether a former SEC attorney may have revealed confidential investigative information in a book he wrote. Mr. Kotz said the attorney may have provided the privileged information to a company where he worked as a lobbyist after leaving the SEC.
Separately, his office is also trying to determine if nonpublic information may have been disclosed to a national news outlet.
Mr. Kotz, who is leading the internal investigation into the agency's failure to detect Bernard Madoff's Ponzi scheme, disclosed some details about his pending investigations in his newly published semiannual report to Congress on Monday.
In it, he said he has 19 pending investigations, one of which is tied to the Madoff failings.
His Madoff investigative report is expected this summer and aims to shed light on why the enforcement and inspections divisions never uncovered the scheme for decades.
The Madoff scandal was a major embarrassment for the enforcement division, which has since been working to restore its reputation to investors.
As if the Madoff-related shortcomings weren't enough, however, Mr. Kotz's report to Congress shows he is also looking into numerous other possible failings in the SEC's enforcement division.
In addition to some of the disclosure-related investigations, other pending probes include allegations by shareholders that the SEC failed to enforce securities laws and another allegation by a defense attorney of misconduct in the enforcement division.
News of these pending investigations comes at a tough time for the enforcement division. Last month, a report by Mr. Kotz into possible insider-trading by two SEC enforcement attorneys was released to the media. The report suggested the lawyers were engaging in suspicious trading, and Mr. Kotz passed his findings on to the U.S. Attorney's Office and the Federal Bureau of Investigation. Both are now investigating the two attorneys, according to Mr. Kotz's report.
In response to the insider-trading probe, SEC Chairman Mary Schapiro announced the agency was beefing up its rules on securities trading by SEC employees and installing a new computer system to help prevent trading abuses.
Meanwhile, Mr. Kotz also said in his report Monday he has several pending audits. One of those is examining the SEC's role in overseeing credit-rating firms. Mr. Kotz said a report with recommendations on the regulatory oversight of ratings firms is forthcoming.
Write to Sarah N. Lynch at sarah.lynch@dowjones.com
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