Report drubs SEC for porn-browsing staff, ethical lapses

It’s not quite on par with the salacious Minerals Management Services sex, drugs and oil scandal that rocked the Denver-based office last fall, but a new episode of employees behaving badly has tarred another federal agency.

So what was Securities and Exchange Commission (SEC) staff doing while Bernard Madoff was bilking clients out of an estimated $50 billion in a Ponzi scheme of epic proportion and Wall Street was melting down? Apparently not living up to their mission of “protecting investors and maintaining fair, orderly, and efficient markets.”

ProPublica lifts the veil on a virtually ignored SEC Office of the Inspector General (OIG) report, released the day after Thanksgiving:

[Investigators] uncovered evidence that an employee who was still in his probationary period had used his SEC laptop computer to attempt to access Internet websites classified as containing pornography, resulting in hundreds of access denials. The OIG investigation also disclosed that this employee successfully bypassed the Commission’s Internet filter by using a flash drive.

And with tongue planted firmly in cheek, ProPublica’s Jake Bernstein notes, “Presumably, that’s not the kind of initiative the SEC is looking for.”

Bernstein’s story details some of the juicier elements of the latest rogues’ gallery mimicking a taxpayer-supported federal agency:

There were also more serious misdeeds raised by the report. For example, there is the case of the senior-level commission employee who “clearly and purposefully identified herself as a Commission employee when dealing with brokers about a family member’s account,” making the broker in question feel like she was trying to “intimidate and bully him.” The OIG referred the matter to management for “disciplinary action, up to and including dismissal.” By the end of the period covered in the report, management “had not proposed or taken action.”

An employee repeatedly and flagrantly used Commission resources, including Commission Internet access, e-mail, telephone and printer, in support of his private photography business for several years.

The report reveals also that two commission staffers employed as attorneys didn’t have active bar memberships. One attorney let his bar license lapse in 1994. The report said one of the lapsed lawyers “submitted a declaration in Federal court, in which he stated that he was an attorney employed by the SEC. We referred the potential false statement or perjury to the applicable United States Attorney’s office.” (The office declined to prosecute.)

The IG also found that the commission did not have a sufficient system in place to “prevent and detect insider trading on the part of Commission employees or violations of the Commission’s rules.”

An employee survey conducted by the inspector general revealed that employees failed to enter data into a computer system used to manage investigations.

Pending investigations by the SEC Inspector General include some hair-raising examples of agency management run amok:

• Possible Violations of Rules Governing Employee Securities Transactions
• Whistleblower Allegations of Falsification of Contract Documents
• Complaint of False Statement in Previous OIG Investigation
• Complaints of Unprofessional Conduct by Commission Contractor and Employee
• Allegations of Perjury by a Commission Manager and Receiver Conflict of Interest
• Complaint of Management Retaliation Against Staff and Travel Abuse
• Complaint of Perjury and Retaliation by Regional Office Managers
• Allegations of Conflict of Interest and Investigative Misconduct
• Allegation of Retaliatory Investigation
• Allegation of Leak of Confidential Document to the Press
• Complaint of Favoritism, Abuse of Position and Retaliation by a Manager
• Allegations of Repeated Time and Attendance Abuse and Misuse of Government Resources

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