SEC Attorneys Probed For Insider Trading

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. 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.

Read more …

Wonder if the Wall Street Journal will pick up this story tomorrow. Wonder if the attorneys will be asked to resign (or will offer their resignations) just to help preserve any sense of confidence the American public might still have in the SEC. Wonder if the Obama Administration will get involved. Wonder if this a smokescreen of some sort to distract the American public from some other more disconcerting news that will get buried in the fall-out from this one. Wonder if I’m starting to sound like A-Train yet.