SEC attorneys are reviewing the stock holdings of about 3,400 agency employees after some staff in the New York office were found to own securities prohibited by the SEC’s ethics rules.
The lawyers are reviewing all financial disclosues by the SEC’s staff to make sure employees do not have a financial interest in companies they regulate or investigate.
The rules bar SEC employees from owning shares of most Wall Street firms. They also make it madatory for employees to disclose all of their investments.
The SEC does not have a tool that automatically probes the holdings of employees for violations. Its compliance program is designed to review new trades and doesn’t flag holdings that become prohibited after an employee acquires them. This makes employee self-disclosure essential.
The probe by the SEC’s ethics counsel is not a full-fledged investigation. Possible violations are handled by the SEC Inspector General.
The current review follows on the heels of the arrest of Steven Gilchrist in November based on charges of misleading investigators about bank stocks he owned. Similary, it follows a December report in which the SEC’s Inspector General noted that a senior employee failed to disclose that a spouse held prohibited stock, which is also a violation of the rules. The U.S. Attorney’s Office declined to prosecute that case.
SEC employees who must report their financial holdings annually on a confidential disclosure form include the agency’s attorneys, auditors, financial analysts, accountants, economists and examiners. That comes to 3,400 workers, or 75 percent of the SEC’s workforce.
Julie DiMauro is the executive editor of FCPA Blog and can be reached here.