• Did SEC Enforcement Lawyers Engage in Insider Trading?
  • June 12, 2009
  • Law Firm: Holland & Hart LLP - Denver Office
  • An article posted on today’s CBS website reports that the FBI is investigating two attorneys in the SEC’s Enforcement Division for insider trading.   If these lawyers did indeed trade in the stocks of companies under investigation, this would amount to a shocking betrayal of the public trust and would further tarnish the reputation of a once-proud agency now viewed more negatively than the IRS.[1]   The Inspector General's report is available at http://www.cbsnews.com/htdocs/pdf/051409_ak_sec.pdf

    The IG report cited in the article states that one of the attorneys, a female, “traded in the stock of a large financial services company” whom she understood was being investigated.  She also sold stock in an oil company two days before an inquiry into that company was opened by a colleague who "occupies the office next to her.". The male attorney sent e-mails from his SEC account to his brother and sister-in-law recommending particular stocks. 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.

    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.  Since the SEC’s Inspector General admits that there “is no true compliance system at the SEC” to monitor the trades of its employees, the two attorneys under investigation allegedly stated that no one at the SEC had ever before questioned their reported securities holdings or transactions in the decades they have worked there.  It should be noted that to date, the two attorneys have not been charged with any misconduct.

    In a statement to CBS News, the SEC claimed that it was developing a new computer system to facilitate reporting and review of securities trading by all its employees, hiring a chief compliance officer, and providing “greater clarity” of its rules governing the reporting of trades.  At a minimum, the compliance deficiencies unearthed by this investigation cast further doubt on the competence of the SEC’s top management and the quality of judgment exercised by its employees.