SEC Eyed for Negligence in Enforcement Cases
November 29, 2010
By Rachelle Younglai
A federal watchdog is investigating whether a senior Securities and Exchange Commission official bungled an examination
associated with a "major" investment adviser enforcement case in 2009.
The senior official at one of the SEC's regional offices allegedly told staffers not to pursue certain red flags in an investment
adviser examination, according to a report by SEC Inspector General David Kotz.
Kotz's semi-annual report to Congress, released on Monday, did not identify the senior official, the regional office or the major
enforcement case.
The senior official was motivated to cover up his tracks because he was deeply involved in the prior examination that did not
uncover the fraud, according to an internal complaint received by Kotz.
The report from Kotz comes as the SEC continues to rebuild its reputation after the regulator was blasted for missing Bernard
Madoff's epic fraud despite numerous tips and complaints.
The SEC declined comment. Kotz would not elaborate further.
According to the report, the complaint also alleged that a hostile work environment existed in the regional office because
management failed to discipline the senior official after it was revealed that he had viewed porn on a SEC computer.
According to the report, Kotz is still eyeing allegations that the enforcement division was negligent in an investigation of an
insider trading case. Among other things, Kotz is also probing allegations that SEC staff failed to properly investigate a
prominent law firm for obstructing an ongoing case.
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