SEC to Step Up Internal Oversight
Agency to Monitor Stock Trades by Employees More Closely
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Saturday, May 23, 2009
The Securities and Exchange Commission announced new measures yesterday to guard against improper stock trading by the agency's employees.
The announcement follows a report by the agency's inspector general that 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 report said that the agency's system for monitoring such trades was broken.
In a statement, SEC Chairman Mary Schapiro acknowledged weaknesses and promised reforms, including tougher rules governing trades and a new system for tracking trades.
"It only makes sense that we have a world-class compliance program -- just as we expect from those we regulate," Schapiro said. "The employees at the SEC have a well-deserved reputation for integrity and professionalism. These measures will further bolster our standing by helping to prevent not only an actual impropriety, but the appearance of one as well."
One of the key new rules will prohibit staff from trading in the securities of companies under SEC investigation. Currently, staff are banned from trading in the securities of companies only when they have knowledge of an investigation.
Employees will now have to clear all trades with the agency, authorize their brokers to provide the agency with information about their trades and certify they do not have confidential information about the stocks.
Employees already aren't allowed to short sell stocks, borrow money to buy stocks or do a range of other kind of trades. Employees must hold stock they buy for six months.
The SEC also is hiring an outside firm to develop a computer system to track employee trading. The new system will automate employee reporting of trades. Right now, trades are often reported after the fact on handwritten forms.
Schapiro also is consolidating responsibility for monitoring trading in an ethics office and is planning to hire a chief compliance officer.
