SEC judge says agency did not fail in duties
A Securities and Exchange Commission judge found little evidence to support a report that the agency failed to enforce the law in a 2003 investigation into Bear Stearns pricing of debt, according to an administrative law judge decision released on Friday.
In October, an SEC inspector general audit found there were delays in the investigation, as well as the potential appearance of favorable treatment. The audit singled out SEC regional director David Nelson and said he failed to enforce securities laws in connection with the case.
But the SEC’s administrative law judge, a judge based inside the agency rather than a court, found the inspector general’s report did not support his conclusions.
“There is no basis for the IG’s apparent conclusion that Nelson did something wrong by dropping the case after Miami staff reached settlements in principle …,” said Judge Brenda Murray.
The judge’s report also said there was no persuasive evidence to support the inspector general’s conclusion that, through neglect, the SEC lost a significant opportunity to coordinate with a federal prosecutor and uncover “potential systematic problems” at Bear Stearns.
In a separate report, the judge said she did not support disciplinary action against the agency’s top enforcement officer, Linda Chatman Thomsen and another enforcement officer for their role in an insider trading investigation involving Pequot Capital Management. The enforcement officials were reprimanded by the IG, in a separate report.
The SEC’s inspector general David Kotz found that there was a connection between the firing of SEC lawyer Gary Aguirre and Aguirre’s efforts to interview an influential Wall Street executive in connection with the insider trading probe.
Aguirre had said he was fired after his inquiry got too close to John Mack, who is now the chief executive of Morgan Stanley.
However, the judge said the IG report did not support Aguirre’s claims that he was improperly terminated in retaliation for his complaints about preferential treatment of Mack.
The judge also said the record does not show that Aguirre was terminated because he complained about his supervisors.
The judge’s report does not support any disciplinary action against Robert Hanson, Aguirre’s branch chief in enforcement from February through early September 2005, and does not reach a conclusion about Mark Kreitman, an assistant director in enforcement. The IG had recommended that action be taken against Thomsen, Hanson and Kreitman for their roles in the Pequot investigation.