Departing employees of the top regulator of Wall Street are required to file post-employment statements if they plan to represent a client before the commission within two years. POGO filed a Freedom of Information Act request for all post-employment statements filed by former SEC employees between 2006 and 2010 and mounted them on a public database.
POGO analysts found that 219 former SEC employees had filed 789 post-employment statements indicating their intent to represent an outside client before the commission. Some filed within days of leaving their federal jobs, many filed multiple statements and some who were required to file did not. In the bulk of the statements, POGO said, the ex-employees said their old jobs did not involve matters on which they plan to appear before the commission.
As an example of the harm such conflicts can inflict, the study said SEC Inspector General David Kotz "has identified cases in which the revolving door appeared to a factor in staving off SEC enforcement actions and other types of SEC oversight," such as cases involving the now-defunct financial giant Bear Stearns and the Ponzi scheme for which Texas financier Allen Stanford is set to be tried in September.
"The revolving door to high-paying jobs representing Wall Street can undermine the integrity of the SEC," said Michael Smallberg, the POGO investigator who built the database. "It's not a stretch for the public to wonder whether the promise of future employment affects how SEC regulators treat certain firms."
In a statement in response, SEC spokesman John Nester said, "The SEC has a rigorous program to help departing employees meet not just the letter but also the spirit of the law." He noted that Government Accountability Office is conducting a review of post-employment regulation.
Nestor also described the current rules as follows: "While the SEC cannot limit the employment of former staff members, they are subject to the criminal post-employment laws regarding representations before the SEC after they depart the agency. If the employee worked personally and substantially on a particular matter involving specific parties while employed at the SEC, then the employee is permanently barred from representing anyone before the SEC or any other federal government agency on that same matter.
"If the matter was under the employee's official responsibility during the last year of government service," Nester said, "then the employee is barred for two years after leaving federal government service from representing anyone before the federal government on that same matter. In addition, certain high-level officials are subject to a one-year 'cooling off' period. For a period of one year after leaving a 'senior' position, these officials may not make any appearance before or communication to their former agencies on behalf of any person, other than the United States, with the intent to influence them on any matter in which that person seeks official action. In addition, SEC employees are also subject to the SEC's own ethics rules that go beyond the government requirements."
POGO recommended that Congress and SEC "strengthen and simplify" restrictions on former employees' work, verify the post-employment statements' accuracy, and make the statements publicly available online.
Sen. Chuck Grassley, R-Iowa, praised the POGO study in a statement: "The SEC's revolving door seems to be more active than ever. Revolving-door restrictions that apply to the rest of government must be made to apply to the financial regulatory agencies. Along with the restrictions, there should be public disclosure of where these former financial regulators are working and what issues they are working on. Transparency is a proven back-stop to enforce ethics rules."