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SEC Staffers Watched Porn as Economy Crashed

Updated at 6:30 p.m. EDT

Republicans are stepping up their criticism of the Securities and Exchange Commission following reports that senior agency staffers spent hours surfing pornographic websites on government-issued computers while they were supposed to be policing America's financial system.

California Rep. Darrell Issa, the top Republican on the House Oversight and Government Reform Committee, said it was "disturbing that high-ranking officials within the SEC were spending more time looking at porn than taking action to help stave off the events that put our nation's economy on the brink of collapse."

He said in a statement Thursday that SEC officials "were preoccupied with other distractions" when they should have been overseeing the growing problems in the financial system.

According to a Nielsen survey, in March alone 29 percent of Americans accessed adult websites from a work computer spending an average of one hour and 45 minutes on such sites over the course of the month, reports CBS News Congressional correspondent Nancy Cordes.

29% Accessed Porn on Work Computers Last Month

The SEC's internal investigation found some of the violators spent more time watching porn than watching the markets.

The SEC's inspector general conducted 33 probes of employees looking at explicit images in the past five years, according to a memo obtained by The Associated Press.

The memo says 31 of those probes occurred in the 2 1/2 years since the financial system teetered and nearly crashed.

The staffers' behavior violated government-wide ethics rules, it says.

The SEC says all the offenders were detected by the agency's own surveillance system and either disciplined or dismissed. But security experts say the real concern here is that porn sites often contain malicious software that could infiltrate the SEC's network, which is filled with sensitive financial information.

"We will not tolerate the transgressions of the very few who bring discredit to their thousands of hardworking colleagues," said SEC spokesman John Nester, adding the agency has lately increased penalties.

The memo provides fresh ammunition for Republicans who suspect the timing of the SEC's lawsuit last week against Wall Street powerhouse Goldman Sachs Group Inc. News of the suit came as the Senate prepared to take up a sweeping overhaul of the rules governing banks and other financial companies.

The memo was written by SEC Inspector General David Kotz in response to a request from Sen. Charles Grassley, an Iowa Republican. It summarizes past inspector general probes and reports some shocking findings:

A senior attorney at the SEC's Washington headquarters spent up to eight hours a day looking at and downloading pornography. When he ran out of hard drive space, he burned the files to CDs or DVDs, which he kept in boxes around his office. He agreed to resign, an earlier watchdog report said.

An accountant was blocked more than 16,000 times in a month from visiting websites classified as "Sex" or "Pornography." Yet he still managed to amass a collection of "very graphic" material on his hard drive by using Google images to bypass the SEC's internal filter, according to an earlier report from the inspector general. The accountant refused to testify in his defense, and received a 14-day suspension.

Seventeen of the employees were "at a senior level," earning salaries of up to $222,418.

The number of cases jumped from two in 2007 to 16 in 2008. The cracks in the financial system emerged in mid-2007 and spread into full-blown panic by the fall of 2008.

A senior attorney whose SEC laptop contained 775 inappropriate images.

"You read about federal employees doing that, you think it's another example of the waste of taxpayers' money," says Sen. Chuck Grassley (R-Iowa).

About 16 percent of men with Internet access at work admit to looking at online porn while at the office, according to a 2006 survey by Websense Inc.

Former SEC spokesman Michael Robinson said he shares the public's outrage about SEC staffers who enjoyed porn on the taxpayer dime when they were supposed to be keeping the markets safe.

"This is a salacious issue especially because it happened at a regulatory organization that's at the center of a lot of controversy that's going around right now," says Robinson. "But you know, this is an issue that most companies and most organizations struggle with across the country and around the world."

He said he expects the head of the SEC, Mary Schapiro and her team, are "very focused on" the issue.

Schapiro has been parrying Republican complaints about the Goldman Sachs lawsuit, which agency officials hoped would mark a new era of tougher oversight of Wall Street. They followed high-profile embarrassments including the failure to catch Ponzi kings Bernard Madoff and R. Allen Stanford.

Republican lawmakers also accused the SEC of being influenced by politics. The SEC's commissioners approved the Goldman charges on a rare 3-2 vote. The two who objected were Republicans.

Schapiro is a registered independent who has been appointed by presidents of both parties.

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