SEC Attorneys Probed For Insider Trading

CBS News Exclusive: Two High-Level Attorneys Under Scrutiny By FBI

(CBS)  Written by CBS News investigative producer Laura Strickler and chief investigative correspondent Armen Keteyian.

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CBS News has learned that two attorneys at the Securities and Exchange Commission (SEC) are under "active" criminal investigation by the FBI for trading stocks based on inside information.

Accusations against the two lawyers - a man and a woman whose names have not been released - are detailed in a report by the SEC inspector general obtained exclusively by CBS News.

The report, based on a review and analysis of "more than two years of e-mail and brokerage records," puts increased pressure on a commission that has come under fire lately for failing to detect the $60 billion Bernard L. Madoff Ponzi scheme, and turning a blind eye to the Wall Street financial crisis.

"We ought to be outraged if there is one insider trading information that’s leading to personal profit," Sen. Charles Grassley, R-Iowa, the ranking member of the Senate Finance Committee, told CBS News.

In response to the IG report, Grassley sent a letter to SEC Chairman Mary Schapiro expressing that outrage and requesting detailed information about the stock holdings and trading practices of all SEC employees.

"It’s hard to imagine a more serious violation of the public trust than for the agency responsible for protecting investors to allow its employees to profit from non-public information about its enforcement activities," Grassley said in his letter to Schapiro.

According to the report, the male attorney under investigation by the FBI works in the Office of the SEC's Chief Counsel and "has access to a tremendous amount of nonpublic information."

The report alleges both the male attorney and female attorney - who works in the enforcement division - "traded in the stock of a large financial services company" despite being told by another SEC employee of ongoing "investigations of that company." The report calls this is a direct violation of SEC rules.

In another possible violation, the male attorney was found to have sent e-mails from his SEC account to his brother and sister-in-law "recommending particular stocks." The attorney’s stock portfolio was estimated at one point to be valued at $200,000.

As for the female attorney, the report states that "two months before an investigation of a large health care company was opened" she "sold all of her shares of stock in the company." And "two days before an inquiry was opened" by a colleague who "occupies the office next to her" the female attorney sold stock in an oil company. Investigators say the female attorney traded stocks 247 times between January 2006 and January 2008. At one point her stock portfolio was valued as high as $170,000.

In addition, the report says that the female attorney “spent much of her work day e-mailing and searching the Internet about stocks.” It quotes her telling investigators: "It's my main hobby. It's my passion.” And: “It’s my way of keeping intellectually above what other people are doing.”

While the woman told investigators she did not check the SEC database - known as EDGAR - for information related to her personal stock trades, the inspector general said computer records reveal that she did, in fact, check the database on at least four separate occasions. According to the Inspector General, SEC employees are prohibited from accessing EDGAR for personal trading purposes.

Said Grassley, "Isn’t it odd that you’ve got people in the prosecuting department that are trying to profit from information that they get from it. Their job is to be prosecuting and not profiteering."

According to employee interviews with investigators and SEC e-mails, the two colleagues shared many of the same stocks, frequently discussed their trades via e-mail, and regularly talked about SEC investigations and their own stock trading during weekly lunches.

In one instance, a third SEC employee told investigators the two attorneys under investigation encouraged her to buy stock in a company - despite knowledge of multiple ongoing investigations into that company, a violation of SEC rules.

Inspector General David Kotz, who uncovered the possible insider trading, declined a formal request for an interview, citing the ongoing investigation. But when we caught up with him near his office Kotz told CBS News, "The report talks about our concerns that there is no true compliance system at the SEC."

Both attorneys - who deny any wrongdoing - still work at the SEC and make six-figure salaries. The investigation was triggered after the high volume of trades by the female attorney set off alarms inside the agency.

As it now stands, there’s no telling how many other employees are not reporting their trades because the SEC has no compliance system in place to monitor the trades of their employees. In fact, the two attorneys under investigation say that no one at the SEC had ever before questioned their reported securities holdings or transactions in the decades they have worked at the commission.

In an e-mailed statement to CBS News, the SEC said, "We take seriously even the suggestion that any SEC employee would engage in insider trading. We note that the IG's report neither accuses any SEC employee of insider trading nor concludes that any such conduct took place."

The statement went on to say, "Even so, we have been taking additional steps to enhance our protections against the potential for improper conduct. Those include developing a new computer system to facilitate reporting and review of securities trading by all SEC personnel; hiring a chief compliance officer; and providing greater clarity of our rule governing the reporting of trades."

[sjc_1]

Charles Grassley...gee Chuck, it was your party that was in power looking the other way while the place was being looted and now you act as if it all a big surprise...pleeease...how stupid do you think the public is?

[quapawsix]

Watched the rise and fall of the Roman Empire and you see history repeating itself the people lost their will to think for themselves and wanted their leaders to do the thinking for them. Point in case the American people expect their government to do something about it so it is not hard to see how we got ourselves into this mess. And the sad thing is the rest of the world bought right into it. Even in their own countries their governments are in with the banker and credit thieves. Wake up people of the world end the GOV/CORP agreement and their ship sinks or be prepared to be enslaved in debt. Remember their hold over you is fear , fear of war, fear of economic collapse, fear of not being able to get credit, fear of not having the biggest, the fastest, the best. If you are afraid you are easy to control.

[reality42]

Great post i think many Canadians feel the same way as you
_______________________________________________________________
The more I read about the abuse and corruption in the U.S. the more I realize that you are more like the roman empire than anything. Your anything goes, immediate gratification culture has brought about the ruin of world economic system. Yet you don't even apologize to the countries of the world?? Why?

Oh I know because you don't know that there are other residents on the planet.

It is abundantly clear that you are ruined. It is shame - as a Canadian I cherished our relationship. NO longer I am afraid. Your corrupt way of life is your undoing and probably ours too.

People of the US stand up and do soemthing, your great nation has been taken over by elites who could care less about you. Your institutions have been corrupted, this article shows that.

good luck

[reality42]

The American people have been getting ripped off for years by Government. when they take over goverments in South America they give support money to the counrty where as over 50% is give to american big business to set up shop and dictate the American way.

[ubrew12]

OmiGOD!!!

They were going to make $200,000 off of some of their trades!!!

What is that, 1/100th the annual salary of the average Bank of America executive??? Who gets paid $20,000,000 a year for running their company into the ground???

By all means, throw the book at them.

[ubrew12]

captdd said: "GREED is no longer acceptable! If you will not do your job without ripping off America then go to jail and do hard time... "

Its never been acceptible. What you just perscribed is the arrest of every WallStreet banker out there. Are you willing to fight for that, or do you just have it in for a coupla government employees who, also motivated by greed, let it get out of hand.

Why are we paying WallStreet banksters trillions of dollars for, basically, ripping off the nation, and now perscribing HARD TIME for gov't employees who also wanted some sugar.

Put them all in jail, or put NONE of them in jail, is what I say.

[ubrew12]

I find it incredibly sad that, after everything thats gone down in the last year, that the only financiers under investigation and potential jailtime for trying to profit from the sh*t thats gone down are two government employees of the SEC.

Its clear that if you try to profit off insider information, but are a Wall Street bankster, our punishment for you is a trillion tax dollars to bail out your institution. Keep up the 'good work' and heres a Golden parachute for you.

And if you are a underpaid government employee, with the same kind of knowledge, but getting paid 1/100th the pay of a Wall Street bankster, and the unholy profits being made by the people your are monitoring finally gets to you and you engage in some profiteering of your own:

its LIFE for you buddy.

[captdd]

GREED is no longer acceptable! If you will not do your job without ripping off America then go to jail and do hard time...

[captdd]

If Congress can't police the Police then we need NEW Congre$$ watchdogs...

[captdd]

Send these slime bags to the big G/Cuba if they are found guilty...

Millions of folks out of work and we have to deal with SEC crooks that are making Big Bucks!

If the SEC can't police it's own then they all deserve to be laid off and new folks appointed that will serve America with pride...

[weedapoopl]

Yet you don't even apologize to the countries of the world?? Why?
Posted by mtt04 at 5:35 AM : May 16, 2009

Baby Boomers never apologize.

The're too rude.

[mtt04]

The more I read about the abuse and corruption in the U.S. the more I realize that you are more like the roman empire than anything. Your anything goes, immediate gratification culture has brought about the ruin of world economic system. Yet you don't even apologize to the countries of the world?? Why?

Oh I know because you don't know that there are other residents on the planet.

It is abundantly clear that you are ruined. It is shame - as a Canadian I cherished our relationship. NO longer I am afraid. Your corrupt way of life is your undoing and probably ours too.

People of the US stand up and do soemthing, your great nation has been taken over by elites who could care less about you. Your institutions have been corrupted, this article shows that.

good luck

[egresor]

hey

no fair!

we americans like not seeing the forest for the trees. please refrain from honest assessments.

:)

[babooph]

And our brainwashed are taught "OTHER" places are crooked.

[therocket007]

I would consider this an occupational hazard considering the environment these people are asked to function in. It is like working in an biohazardous factory with no saftey equipment. These positions should be like special prosecutors...hire people for a couple of years put their stocks in trust pay them well and then sic em...asking them not to partake well....take a look at the televangalists and you get your answer.
Cheers,
RR

[weedapoopl]

This probably occurred during the Bu$h years...
Posted by inventagod at 12:56 PM : May 15, 2009

This probably occurred during the $lick Willy years...

[stn_sage]

WHAT?! A couple SEC lawyers doing a little "insider trading"---NO! I just don't believe it!

WHY I thought everyone in positions of high authority in politics and business were totally honest! Why! I'm shocked!

.....and I'm being TOTALLY sarcastic about this, folks!

[inventagod]

This probably occurred during the Bu$h years...

[weedapoopl]

My problem with Obama is that he is not taking on the elitists -- the banksters, swindlers, mortgage fraudsters, et al... no prosecutions of the criminals... think of all those fat cat criminals that are lying on a beach somewhere being tended by servants... luxuries that we, our kids and grandkids are going to be paying for well into the future... hard to believe that an FDR or Teddy Roosevelt or Grant or Eisenhower would have allowed these criminals to get away with it... shame on the Government.... Obama is a harvard trained lawyer... he knows crimes were committed... he also knows the criminals are getting away with it... they are laughing at us... we got our rears kicked off..
Posted by sdraziw at 7:18 AM : May 15, 2009

Exactly right.

The SEC should already be under intense investigation for ignoring Madoff, starting in 2000 back in the Clinton years, even when Madoff was being reported to them complete with mathematical proof that he was committing fraud.

This was a gross failure of our government to do its job.

It is an outrage that nobody in the SEC is going to prison for it. Obama is not doing his job by failing to pursue the culprits who gave Madoff a free pass for 8 years.

Until Obama takes an aggressive stance on this issue, we will continue to see economic weakenss as investors lack confidence that they have a fair chance in such an outlaw business environment.

But Obama knows whose toes would get stepped on, and he doesn't want to face the political fallout.

[weedapoopl]

Killing people under the name of God is a terrible thing,
Posted by boatdocster at 7:31 AM : May 15, 2009

The Crusades started because the Muslims were killing people under the name of Allah, in their "convert or die" campaign to spread Islam.

The conquered and occupied Jerusalem, then they began attacking Turkey. Turkey appealed to the Pope for help, reminding him that the Muslims had captured his Holy City.

The Christians took Jerusalem back, but then the Muslims sent their strongest general, Saladin, to "liberate" what the Muslims now considered to be their holy city. They considered that the Christians were the invaders, and they took Jerusalem back again.

It remained under Muslim control until modern times.

If we're going to start accusing people of religious violence, let's make sure we have all the facts.

[Hermit1948]

This is just the "tip of the iceberg" folks. There is going to be a lot more greed revealed.