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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 

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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.


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