WASHINGTON --- Senator Chuck Grassley is asking for an explanation of the “big divide” between the stated policy of the Securities and Exchange Commission and the Wall Street watchdog’s actual practice in communicating and cooperating with the Justice Department on securities fraud cases.
Grassley said that recent comments by the SEC Director of Enforcement at a securities industry conference, “sound the alarm for anyone concerned about the SEC being overly cozy with those it should be investigating, to the point of not only committing to its own cooperation, but also providing information about the intentions of the Justice Department.”
Grassley said the public deserves to know “what kind of arrangement there is between the SEC and the Justice Department on behalf of the securities industry.”
In November, the SEC Director of Enforcement, Robert Khuzami, said “there is going to be earlier and more frequent collaboration between us and Justice” about whether there’s criminal interest, “so defense counsel can have as much information as possible.”
However, a new SEC enforcement manual says that “it is the general policy of the Commission not to comment on investigations conducted by law enforcement authorities responsible with enforcing criminal law.” The manual even instructs SEC staff to decline to identify which criminal authorities should be contacted to learn about a possible parallel criminal investigation.
“All the promises of financial regulatory reform ring hollow if the administration is allowing the top enforcement official at the SEC to relay to potential targets of an investigation exactly what the Justice Department has in store for them,” Grassley said.
In letters to SEC Chairman Mary L. Schapiro and Attorney General Eric H. Holder, Jr., Grassley asked for copies of written guidance on collaboration and communication between the SEC and the Justice Department, a detailed description of the nature and extent of communications between the agencies in the Goldman Sachs and Pequot matters, and written responses to additional questions.
In 2007, Grassley and Senator Arlen Specter spelled out in a comprehensive report the SEC Inspector General’s failure to investigate credible allegations by former SEC attorney Gary Aguirre that his supervisor pulled punches in the investigation because of one witness’ political clout. The former SEC Inspector General left his position the same day the Grassley-Specter report was released. Last year, the SEC finally obtained a $28 million dollar settlement from Pequot and paid Aguirre years of back pay in a settlement related to his termination.
The SEC drafted its enforcement manual response to the recommendations in the August 2007 Grassley-Specter report.