SEC employee rules under scrutiny over job hopping
Securities and Exchange Commission is feeling more heat in Washington.
As it prepares final rules on whistle-blowers in an effort to encourage corporate employees to disclose wrongdoing at their own companies, the agency has come under renewed criticism in Congress over how it handles its own employees, who often leave for jobs at private law firms and financial companies. Questions continue to arise about whether S.E.C. officials show favoritism as they look for their next jobs.
Criticism of the SEC’s ability to protect investors has increased in recent years after the debacle over ignored warnings about Bernard L Madoff’s huge Ponzi scheme came to light.
The commission has reached a crossroads on the politically contentious issue of its whistle-blower program, while dealing with increased Congressional scrutiny of whether it can effectively regulate Wall Street and the securities industry.
The issue of the revolving door is nothing new for the SEC, which has always struggled with high employee turnover. The Project on Government Oversight released a report on Friday detailing how frequently former staff members have filed disclosures within two years of leaving the agency regarding representation of clients before the commission. In one instance, a former staff member filed a report about appearing on behalf of a client just two days after leaving the SEC, and there have been instances in which the matter had been pending when the person left the government.
Leaving a federal job for a position with private industry is a common occurrence, but questions have been raised about the effect that former SEC staff members might have on a matter when they return to represent clients before the agency.
At a hearing before a House Financial Services subcommittee on Friday, SEC officials disclosed that a former senior enforcement official is being investigated by the Justice Department for his role in trying to represent the jailed Texas financier R Allen Stanford, who is accused of running a $7 billion Ponzi scheme, shortly after the official left the SEC. The former official is also accused of repeatedly blocking investigations of Stanford operations while at the SEC.
As part of the Dodd-Frank Act, the Government Accountability Office is to submit a report to Congress by July analyzing staff turnover at the SEC and the effect it has on the agency’s regulatory mission.
The study was included in the legislation rather than imposing an outright two-year ban on former staff members appearing before the SEC, which was proposed by Senator Charles E. Grassley, Republican of Iowa.
The GAO report is likely to set off calls in Congress for new rules to restrict the ability of staff members who leave the SEC to show up a short time later representing private parties with issues before the agency.
©2011 The New York
Times News Service