SEC watchdog probing possible employee disclosures

[June 02, 2009]  WASHINGTON (AP) -- A score of pending investigations by the Securities and Exchange Commission's internal watchdog include several involving possible improper disclosure of confidential information by agency employees, including enforcement attorneys, the inspector general says.

In his semi-annual report to Congress filed Monday, SEC Inspector General David Kotz outlines several investigations into possible instances of employees' disclosure of nonpublic information in violation of agency regulations.

The cases include possible disclosure by an SEC attorney to a large investment bank of a former bank employee's contacts with the agency, possible leaking of information from an SEC database to an FBI agent who was later convicted of fraud, and possible improper disclosures in an unnamed book and to a national news organization.

"We appreciate the role of inspectors general in highlighting areas that may need improvement," SEC spokesman John Nester said Monday. "In fact, we have concurred with most of the recommendations stemming from the completed audits cited in the semi-annual report and are implementing them as appropriate. And we are committed to working constructively with the office of the inspector general."

The revelations come a few weeks after it became known that federal prosecutors and the FBI have been investigating possible illegal insider trading by two SEC enforcement attorneys, who were in a position to receive sensitive information about agency probes of public companies.

Kotz found that the frequent stock trades over a two-year period by the pair raised suspicions of insider trading. He also concluded that the SEC "has essentially no compliance system in place" to ensure that employees don't engage in insider trading with the huge amount of confidential information to which they have access.

The disclosures come at a time when the SEC has been roiled by criticism over its failure to detect the massive pyramid scheme run by fallen money manager Bernard Madoff, despite red flags raised to its staff by outsiders over the course of a decade. Kotz has been investigating the SEC's failure to uncover the fraud by Madoff, a former chairman of the Nasdaq Stock Market who was a member of SEC advisory committees.

SEC Chairman Mary Schapiro, an Obama appointee who took over in January, has taken several actions intended to strengthen and speed the SEC's enforcement efforts, and to tighten internal management and processing of complaints and tips. The agency also recently took measures to strengthen its compliance program to prevent improper securities trading by employees.

[Associated Press; By MARCY GORDON]

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