Watchdog Digs Into Conduct At SEC
Sunday, May 17, 2009
A Securities and Exchange Commission official attempted "to intimidate and influence" a family member's broker on multiple occasions by invoking her position, potentially violating agency rules, according to the agency's inspector general.
The allegation, detailed in a report reviewed by The Washington Post, is one of several that have raised questions about the internal conduct of some SEC employees at a time when the regulator is trying to counter accusations that it failed to effectively police Wall Street.
Another investigation found that some of the agency's enforcement lawyers may have traded the stocks of Citigroup, United Health Group and other firms around the time the agency opened investigations into the companies.
The inquiries come as the SEC is trying to lift its image out of a morass created by its failure to stop Bernard L. Madoff's massive fraud or prevent the collapse of major Wall Street banks the agency regulated.
In the case of the SEC official who acted on her mother's behalf, investigators said the official, deputy secretary Florence Harmon, allegedly yelled at a Morgan Stanley broker over a disagreement and told him of her position at the agency. She later told a bank executive that he "should have Googled her name before he spoke with her," according to the report.
The broker told investigators she was trying to "bully him" and informed higher-ups at his firm. The inspector general, who didn't name Harmon but listed her position, referred the administrator for disciplinary action, up to and including dismissal. Her name was confirmed by an official. She continues to hold her post.
An SEC spokesman declined to comment on the case and said Harmon was unavailable. Attempts to reach her at home and at the office were not successful.
For months, a top federal lawmaker and the SEC's internal watchdog have been questioning whether the agency can adequately address possible violations of rules by employees. The SEC acknowledges that it is working to reform its internal practices.
Sen. Charles E. Grassley (R-Iowa), who released a heavily redacted version of the stock trading investigation last week, said the SEC must do better.
"Without a reliable compliance system, the SEC can't know whether this is an isolated incident or a widespread problem," he said in a statement. "The SEC needs a better system to deter misconduct and give the public confidence that this sort of thing isn't a systemic problem."
The SEC's inspector general, H. David Kotz, has tangled with the agency frequently since his appointment in 2007. He summarized the investigations in reports The Post requested through the Freedom of Information Act. In the report on the suspicious stock trades, he recommended the agency adopt new protections to guard against abuses.
"[T]he Commission has essentially no compliance system in place to ensure that Commission employees, with the tremendous amount of non-public information they have at their disposal, do not engage in insider trading themselves," he wrote in the report.