SEC Lacks Reliable Tools to Monitor Employee Trades, Audit SaysDave Michaels
The U.S. Securities and Exchange Commission lacks a reliable system for ensuring that its employees don’t trade stocks of companies under investigation, the agency’s watchdog said.
The SEC’s computer program for monitoring employee trades approved eight transactions from 2009 to 2011 that violated the agency’s ethics rules because they were in shares of companies being probed by the regulator, according to an audit released today by SEC Inspector General Carl Hoecker.
Scrutiny of the SEC’s enforcement of its own ethics rules increased after the previous inspector general in 2010 accused three agency attorneys of improper trading. The issue flared up again in November 2013, when Steven Gilchrist, a New York-based SEC examiner, was arrested and later admitted to having misled investigators about bank stocks he owned.
In late 2013, several other employees in the New York regional office were told their personal holdings violated trading rules, a person familiar with the matter said at the time. The agency’s ethics rules prohibit employees from owning shares of most Wall Street banks, which have brokerage and asset-management units that the agency regulates.
Hoecker’s report also found that the SEC’s ethics office failed to require nine employees to disclose their holdings when they were hired. The ethics office waited as long as 100 days to contact some employees to ask whether they had sold prohibited holdings.
The SEC’s ethics attorneys, according to the audit, failed to require employees to provide proof that they sold banned shares after being told to do so.
In a letter responding to the audit, SEC Ethics Counsel Shira Pavis Minton said the agency would make changes to improve compliance, including adding a tool to make it easier to review employees’ brokerage statements electronically. Minton also wrote that her office would change how it inspects employee filings for banned stocks.
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