Risk & Compliance

GAO to Probe SEC

Senator Grassley asked the GAO to investigate how the SEC tracks investigations and its "success rate," among other things.
Stephen TaubOctober 26, 2006

The Securities and Exchange Commission has just become the target of a broad investigation.

The Government Accountability Office last week agreed to investigate the regulator’s management and methods for policing the financial markets, according to Bloomberg. The securities regulator has been under fire for the way it handled a trading investigation involving hedge fund Pequot Capital and Morgan Stanley Chief Executive Officer John Mack.

Iowa Republican Senator Charles Grassley, the chairman of the Senate Finance Committee, asked the GAO to examine the SEC’s “planning, oversight, control and other management processes” and gauge whether the agency does enough to oversee regulators at the New York Stock Exchange and NASD, reported the wire service. Grassley, who has questioned whether the SEC gave Mack special treatment, asked the GAO to assess how the SEC tracks investigations, the amount of time the agency takes to complete them and its “reported success rate,” according Bloomberg.

Grassley also told the GAO that he wants to know how many referrals of potentially illegal trading activity from U.S. exchanges “actually become part of a regulatory action, he told Bloomberg. “Based upon allegations I have received over the past few months, I have become increasingly concerned regarding the operations of the SEC, and whether the SEC is faithfully adhering to its mission” to protect investors, Grassley reportedly wrote in one of two recent letters to GAO Comptroller General David Walker.

Critics have questioned whether the SEC backed off from speaking with Mack over a probe of Pequot because of his political clout. The issue was raised by Gary Aguirre, a former SEC investigator who was spearheading the Pequot case, in testimony before the Senate Judiciary Committee in June. “This Aguirre story will leave a coating of dirt unless it is probed and washed away,” former SEC commissioner Edward Fleischman told Bloomberg.” It will benefit us all, and it will ultimately benefit the SEC, to have the GAO go through all of this as an outside observer.”

“We welcome the review and look forward to any recommendations that might follow,” Walter Ricciardi, a deputy enforcement director at the SEC, told the wire service.