After an investigation by the SEC Inspector General concerning allegations by Gary Aguirre that his supervisors in the Enforcement Division gave preferential treatment to the Chairman and CEO of Morgan Stanley in an investigation, the IG concluded in a report dated September 30, 2008 that senior Enforcement officials including Director Linda Thomsen should be disciplined. The IG investigation took eight months; involved the testimony or memoranda from 51 separate witnesses including five separate testimony sessions of Aguirre; involved the review of thousands if not hundreds of thousands of emails and documents; and ultimately resulted in a 191-page report.
In another IG investigation that resulted in a separate report also dated September 30, the IG concluded after an extensive investigation that SEC Regional Director David Nelson failed to vigorously enforce compliance with securities laws in connection with the W Holding Company, Inc. and Bear Stearns investigation. The IG recommended that Nelson be subject to disciplinary and/or performance-based action.
On Friday of last week, SEC Administrative Law Judge Brenda Murray rejected any and all disciplinary action in either of the cases. In the Bear Stearns case, Judge Murray wrote in a 9-page decision that "the IG’s Report of Investigation does not support his conclusions,” and that there was "no basis for following the IG’s recommendation as to disciplinary or performance-based action.” Similarly in the separate Pequot/Aguirre matter, Murray found that the record did not support any disciplinary or performance-action against SEC Enforcement Director Linda Chatman Thomsen or Robert Hanson.
Kotz stated in an interview prior to the ALJ's rejection of his recommendations that things had not gotten “icy” in the SEC building his office shares with the Enforcement Division despite his critical reports. This latest development essentially tossing out his disciplinary recommendations against his SEC colleagues may drop the temperature down a few more degrees, however.
Following the judge's ruling, Kotz stated:
"We are surprised and disappointed by administrative judge's decisions. We believe her findings were flawed and not supported by the evidence. We also have serious concerns about the process utilized in arriving at these decisions," Kotz said in a statement. "We stand by our comprehensive and thorough reports 100 percent."
Sen. Charles Grassley, R-Iowa, whose Senate committee requested the investigations, also expressed frustration:
"It looks like the lawyers for the wrongdoers wrote the decisions. It's hard to believe that after everything that's happened over the last two years, the Securities and Exchange Commission is refusing to hold anyone accountable for the misconduct exposed by two independent inquiries," Grassley said in a statement.
Frankly, it's all starting to remind me a bit of the cartoon below, with the IG being Sam the Sheepdog and the Enforcement Division being Ralph Wolf. They head into the building together, grab some coffee and chat about the Redskins as they head to their offices. Then they battle each other all day, every day, until the whistle blows and they carpool home together.