The Securities and Exchange Commission’s internal watchdog has found numerous cases of misconduct by former and current employees, including an abuse of power by one of its lawyers and participation in a Ponzi scheme by another former official.
The findings were outlined in a semiannual report to Congress released on Monday by H. David Kotz, the S.E.C.’s inspector general. The report covers dozens of internal investigations conducted by Mr. Kotz’s office from April 1 through Sept. 30. (Read the full report after the jump).
As part of the report, Mr. Kotz said his office has concluded its well-publicized investigation into whether the S.E.C.’s enforcement director, Linda Chatman Thomsen, inappropriately provided inside information to her former boss, Stephen Cutler, now the general counsel of JPMorgan Chase, amid the bank’s negotiations to buy Bear Stearns in March 2008.
The report does not name Ms. Thomsen and Mr. Cutler, but a person briefed on the investigation confirmed their identities to DealBook. The inquiry, which began in response to an anonymous tip, confirmed that Mr. Cutler sought assurances from Ms. Thomsen before the takeover that JPMorgan would not be sued for prior actions by Bear Stearns.
While Mr. Cutler “did not receive the broad assurances” he sought, Ms. Thomsen did provide him with some assurances related to ongoing and potential S.E.C. investigations of Bear Stearns, the inspector general found.
While he said that Ms. Thomsen’s communication with Mr. Cutler did not violate the S.E.C.’s policy on external communications, she should have taken other steps “to avoid an appearance of impropriety stemming from the relationship.” The probe also found that some senior staff members within the enforcement division believe former high-level officials like Mr. Cutler have undue access and influence within the division.
In response to the findings, Mr. Kotz recommended the S.E.C. clarify what types of nonpublic information enforcement officials may release on their own discretion.
In a separate investigation, Mr. Kotz’s office found a former S.E.C. official inadvertently aided a convicted Ponzi scheme operator in Arizona by using her S.E.C. e-mail account and her office to facilitate payments and communications from the Ponzi scheme’s operator and its victims.
Investigators discovered evidence that the S.E.C. employee used her e-mail to conduct business on behalf of the Ponzi scheme on nearly a daily basis, but did not knowingly engage in fraud. Mr. Kotz’s office recommended the S.E.C. revoke the employee’s retirement benefits, including a $25,000 payment she received upon her retirement.
In another inquiry, the inspector general’s office found that a lawyer in the S.E.C.’s regional office had repeatedly misused his position in the agency and his resources to assist his girlfriend, a former government contractor, in connection with ongoing litigation with her insurance company. In one instance, the S.E.C. attorney requested documents from another federal agency via the Freedom of Information Act that were pertinent to his girlfriend’s case.
Mr. Kotz recommended the S.E.C. take disciplinary action against the lawyer, including firing him from the agency. Mr. Kotz’s report also outlines several other investigations, including two instances of S.E.C. officials using their office computers to view pornography on the Internet and one of an enforcement accountant carrying several large knives into the office and lying about a prior conviction for driving while intoxicated.
— Zachery Kouwe
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