What Is Really Going On at The SEC?

If we thought that our nation's top financial cops had embraced the mantel of truly protecting the public interest, a recent story put forth by CNBC gives us serious reason to pause in that assessment.

This story addresses a leak inside the commission and generates far more questions than answers as to what is really going on inside the offices of the SEC.

Let's navigate, review, and critique how the SEC Probes Its Own Leak But Can't Find Culprit:

The inspector general of the Securities and Exchange Commission conducted an intensive, months-long dragnet in 2013 and 2014 involving phone, email and security searches to determine who inside the agency allegedly leaked information to the media about a closed commission meeting discussing the massive JPMorgan “London Whale” settlement, CNBC has learned.

Investigators at the Office of the Inspector General produced a 16-page report detailing their findings in March, but that report has never been made public. A copy of the report was obtained by CNBC on Thursday.

The document paints a picture of an SEC in which commission members are at odds with one another and investigators scrutinize their colleagues, staff and the media. It also details just how far the inspector general went to learn how information about a Sept. 12, 2013, executive session commission meeting about JPMorgan had apparently been given to a Reuters reporter, Sarah Lynch.

The wide-ranging hunt for the apparent leaker went all the way to the top: The inspector general's report says investigators interviewed SEC Chairwoman Mary Jo White, the SEC commissioners, five employees of the Office of the Chair and 18 employees of the Offices of the Commissioners. In their report, investigators said they searched the emails and BlackBerry records of 39 SEC employees and conducted interviews with 53 SEC employees in total. Details in this article are drawn from the inspector general's report.

Investigators “manually reviewed” each of the SEC employees' office telephone records and “confirmed whether the employees had deleted any records from their telephones,” the report said. And the inspector general's staff scrutinized SEC headquarters visitor logs to determine when Lynch and a number of her Reuters colleagues had entered the building during September and October 2013.

Wow!! There is a lot of meat on this bone. The American public deserves answers to the following questions:

Question 1: how is it that an IG office cannot pinpoint the source of a leak involving seemingly every possible source of communication to a reporter? Some might be inclined to question the competence of the IG. I am more inclined to question whether individuals inside the commission have learned how to game or otherwise compromise their internal systems (phones, email, texts) to leak info without being detected.

Question 2: would the IG care to go so far as to subpoena Ms. Lynch? Is she truly providing breaking news or as it would appear here is she being used as little more than a lackey to do the bidding of an individual or group within the SEC who seems motivated to compromise an internal meeting? This is a great question that strikes me as worthy of further investigation.

Question 3: what does this situation say about the culture within the SEC? Is it possible for individuals — including the commissioners and chairwoman Mary Jo White herself — to trust each other and work in a professional and honest fashion to promote the public interest if there is an individual or individuals who would surreptitiously leak confidential information?

Question 4: is it possible that a firm under review would benefit from a conveniently timed leak from a sympathetic SEC insider? Certainly seems possible if not probable.

Question 5: wouldn't this situation seem to rise to the level of warranting meaningful attention if not a public Congressional hearing? I think so. I mean we are only talking about the very integrity of our nation's top financial cop.

The IG is the office that is charged with making sure that answers to these questions are properly addressed so that the public interest is protected. But if after an intense investigation, the IG is not able to pinpoint the source or the manner of a leak, what does that say?

I will tell you what I think it says. Six years from the crisis centered on Wall Street that the SEC did little to prevent, at its very core little seems to have meaningfully changed within the commission that was deemed incompetent and corrupt by the likes of America's heroic whistleblowers Harry Markopolos and Gary Aguirre.

I would imagine that many within the commission including Ms. White herself might not appreciate that assessment. Perhaps so but then she and her colleagues should explain how a situation such as this leak is even possible let alone actually plays out.

Meaningful investor protection?

Really?

Navigate accordingly.

Larry Doyle

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