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Who’s Minding the Store at the SEC?

Posted by Larry Doyle on May 1, 2012 6:33 AM |

The folks at the SEC could not possibly still be tuning in to porn, could they?

Do you think that any SEC lawyers are once again blowing the cover of whistleblowers?

Would we know if the SEC is complying with the Freedom of Information Act?

While many in Washington and America might think these issues begin and end at the desk of the SEC chair, Mary Schapiro, the simple fact is the real oversight of this organization falls under the purview of the SEC’s Inspector General. Really? Oh yeah!! How so?

From the SEC’s own site, we learn:

The Office of Inspector General (OIG) is an independent office within the U.S. Securities and Exchange Commission (SEC or Commission) that conducts audits of programs and operations of the Commission and investigations into allegations of misconduct by staff or contractors. The mission of the OIG is to detect fraud, waste and abuse, and to promote integrity, economy, efficiency and effectiveness, in the Commission’s programs and operations.

The Office of the Inspector General includes the Inspector General, the Deputy Inspector General, the Counsel to the Inspector General, and two major components: the Office of Audits and the Office of Investigations.

Who is the current Inspector General of the SEC? Great question. There is none. The seat remains empty a full three plus months since David Kotz announced he was leaving his position as IG for private practice. While those who enjoy surfing the internet looking for scantily clad females or blowing the cover of whistleblowers may be breathing a little easier currently, let’s check in with the Sense on Cents’ Hall of Famer Mr. Kotz. He was recently interviewed by the Project on Government Oversight:

POGO: Why is IG oversight important?

David Kotz: The GSA example demonstrates that a watchdog is needed to protect the American people’s interests and tax dollars from waste, fraud, and abuse. IGs identify significant cost savings in every agency and department. They also ensure that employees are not engaged in misconduct or violations that further erode the people’s confidence in government.

POGO: Ten IG offices, including the SEC IG office, currently lack permanent leadership. What implications does that have for oversight?

DK: I believe it can have serious implications. One is simply not being able to utilize the full effect of one’s office in an acting capacity. Permanent IGs are needed to keep careful watch on the actions of agencies and departments.

POGO: As the financial crisis unfolded, David Kotz became a household name (at least inside the beltway and in financial circles). With such a small staff, how were you able to have so much impact?

DK: We worked very hard and had an extremely dedicated team. We understood the importance of the work we were doing and operated in a very efficient manner. We also decided to audit and investigate the most critical issues facing the SEC and did not shirk from our responsibilities simply because our findings may have led to criticism of the agency. We felt it was important to let Congress and the public know where there were failings and believe that our work led to significant improvements in the SEC.

POGO: Is there anything you would have done differently as SEC IG?

DK: Overall, I would say, no. In the position of Inspector General, there will always be folks who are not happy with what you find and people who do not believe in accountability and in acknowledging mistakes when they happen. While I always think about ways to handle things better in particular cases, I am very proud of all of our work. Before we made any finding, there was a tremendous amount of analysis and review, and we never issued any report that was not based upon a strong evidentiary basis. Moreover, while folks were sometimes not happy with particular findings, no one ever came forward with any evidence that we overlooked or interpreted incorrectly.

POGO: Anything else you want to share with POGO’s readers?

DK: While being an IG is no easy task and it is often viewed by many in the federal government as a “thankless job,” it can be very rewarding and I would encourage all those who want to make a difference and believe in accountability, to assist these efforts in ensuring an effective and efficient government.

Effective and efficient government, including at the SEC? Wouldn’t that be nice? I recommend we not hold our breath and expect to see such virtues out of the SEC anytime soon. Why is that? Well, if the SEC is anything like a whole host of other government offices we may be waaaaaaaaiting a loooooong time for a new SEC IG. Check out this data from POGO in terms of Where Are All the Watchdogs? (as of February 8, 2012) and in the far right column whose responsibility it is to fill these offices:

Department of State 1567 days 01/16/2008  — President
Department of the Interior 1163 days 02/23/2009*  — President
Corporation for National & Community Service 1055 days 06/11/2009 Deborah J. Jeffrey 168 days 11/15/2011 President
Department of Labor 1023 days 07/13/2009  — President
National Endowment for the Humanities 459 days 01/28/2011  —  — Agency
Special Inspector General for Afghanistan Reconstruction 452 days 02/04/2011  —  — President**
Department of Homeland Security 429 days 02/27/2011 Roslyn A. Mazer 285 days 7/21/2011 President
Agency for International Development 199 days 10/15/2011  — President
Department of Defense 129 days 12/24/2011  —  — President
Securities and Exchange Commission 95 days 01/27/2012

Transparency and accountability in Washington?

Tell me another one.

Larry Doyle 

Isn’t it time to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook?

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.


  • Silly Sam: recommended

    How do we compare the report highlighted in this commentary with this statement released by “you know who” in The White House?

    Transparency and Open Government

    Memorandum for the Heads of Executive Departments and Agencies
    SUBJECT: Transparency and Open Government

    My Administration is committed to creating an unprecedented level of openness in Government. We will work together to ensure the public trust and establish a system of transparency, public participation, and collaboration. Openness will strengthen our democracy and promote efficiency and effectiveness in Government.

    Government should be transparent. Transparency promotes accountability and provides information for citizens about what their Government is doing. Information maintained by the Federal Government is a national asset. My Administration will take appropriate action, consistent with law and policy, to disclose information rapidly in forms that the public can readily find and use. Executive departments and agencies should harness new technologies to put information about their operations and decisions online and readily available to the public. Executive departments and agencies should also solicit public feedback to identify information of greatest use to the public.

    Government should be participatory. Public engagement enhances the Government’s effectiveness and improves the quality of its decisions. Knowledge is widely dispersed in society, and public officials benefit from having access to that dispersed knowledge. Executive departments and agencies should offer Americans increased opportunities to participate in policymaking and to provide their Government with the benefits of their collective expertise and information. Executive departments and agencies should also solicit public input on how we can increase and improve opportunities for public participation in Government.

    Government should be collaborative. Collaboration actively engages Americans in the work of their Government. Executive departments and agencies should use innovative tools, methods, and systems to cooperateamong themselves, across all levels of Government, and with nonprofit organizations, businesses, and individuals in the private sector. Executive departments and agencies should solicit public feedback to assess and improve their level of collaboration and to identify new opportunities for cooperation.

    I direct the Chief Technology Officer, in coordination with the Director of the Office of Management and Budget (OMB) and the Administrator of General Services, to coordinate the development by appropriate executive departments and agencies, within 120 days, of recommendations for an Open Government Directive, to be issued by the Director of OMB, that instructs executive departments and agencies to take specific actions implementing the principles set forth in this memorandum. The independent agencies should comply with the Open Government Directive.

    This memorandum is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by a party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

    This memorandum shall be published in the Federal Register.


  • Ivana Boastsky

    There’s a temporary replacement for Kotz right now, Noelle something (can’t recall last name) who’s also former Peace Corps for what it’s worth.

    On the replacement for Reisner (deputy director), I think Canellos is an excellent choice. Had a sidebar with several former SEC attorneys and they agree. Initially they were happy with Kotz (because Stachnik was a do nothing), but they later thought he went way too far and became petty in some of his probes (picking on people he didn’t like rather than focus on the big picture).

    Still checking into the Whistleblower drama. Am of the opinion (currently), his cover was blown by the WSJ, not the SEC. I base that on the WSJ’s coverage (a lot) of a seemingly minor case (front running, which goes on just about everywhere there is a prop trading unit). Also am familiar with one of the SEC attorneys on that case and he’s super discrete.

  • Peter Sivere

    I thought Kotz did a great job. He will be hard to replace.

  • Bob

    How can we get all these Outlaws out to the Media? I told my wife the country would be better Run by the Mafia, at least then if you do wrong, You are Dead!! These Days Nobody Answers to any thing they do Wrong. Where are all the regulators? In Bed with the Crooks!!
    Avid readers of your Comments!! Senior Citizens 76 &75

  • Peter Sivere

    In my case Kotz made the case against George Demos, however, Demos left the SEC before he could be disciplined. He is currently running for Congress in NY-1.

    The OIG investigation uncovered testimonial evidence that definitively shows that GEORGE DEMOS SEC\NYRO Staff Attorney disclosed non-public information about an informant during the course of an ongoing Enforcement investigation. In addition, we uncovered evidence that GEORGE DEMOS not only gave outside counsel for JPMorgan permission to use the non-public information about an informant against him, but actually encouraged such use. While the investigation determined that GEORGE DEMOS was counseled by his supervisor about the importance of not disclosing non-public information in December 2005, we are referring this matter to management in light of the additional evidence for consideration of further disciplinary action.

  • Peter Sivere

    “The file in question was examined by the full Committee on September 16, 2011. At that meeting the Committee concluded that there was an insufficient basis for a finding of professional misconduct by the attorney in question. The full Committee, therefore determined the matter should be closed.”

  • Mark J. Novitsky

    The Obama / OBanker / OBush administration. Paul Volker wouldn’t roll over…FIRED!, TARP IG Neal Barofsky wouldn’t roll over…FIRED, SEC OIG Kotz…FIRED, Brooksley Born…FIRED…Elizabeth Warren…left hung out to dry…Recently Sr. EPA official Al Armendariz who in an email referenced “crucify” EPA violators as a warning to set an example…FIRED! — Everyone that was right and actually tried to do their job! Anyone notice a trend? (“Resigned” + forced out…makes it look like it was their idea)

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