Executive Summary

The financial meltdown of 2008 brought renewed focus to the integrity and aggressiveness of federal government oversight of the financial system. One of the most important agencies overseeing financial markets and investor protection is the Securities and Exchange Commission (SEC or Commission).

Several critics, including Members of Congress, have said the SEC’s integrity has been undermined by the “revolving door”—where former SEC employees go to work for entities overseen by the Commission. The revolving door also operates in the opposite direction, where individuals come from entities regulated by the SEC to work for the Commission. The general concern is that a conflict of interest could bias SEC oversight and undermine public confidence in the SEC’s work, as acknowledged by the current SEC Chairman.

The SEC requires that its former employees file post-government employment statements if they plan to represent a client before the Commission within two years of leaving the SEC. The Project On Government Oversight (POGO) filed a Freedom of Information Act (FOIA) request for all post-employment statements filed by former SEC employees between 2006 and 2010 and analyzed these statements and other documents. POGO found that:

Between 2006 and 2010, 219 former SEC employees filed 789 post-employment statements indicating their intent to represent an outside client before the Commission

Some former SEC employees filed statements within days of leaving the Commission, with one employee filing within 2 days of leaving

Some former SEC employees filed numerous statements during this time period, with one former employee filing 20 statements

There are 131 entities providing legal, accounting, consulting, and other services that were identified as new employers in the statements. Some entities recruited numerous SEC employees during the five-year period.

In the vast majority of statements, former SEC employees affirm that they did not participate personally or substantially in, or have official responsibility for, the matter on which they now expect to appear before the Commission

POGO identified instances in which former SEC employees may have been required to file statements during the five-year period but did not

The SEC Office of Inspector General has identified cases in which the revolving door appeared to be a factor in staving off SEC enforcement actions and other types of SEC oversight, including cases involving Bear Stearns and the Stanford Ponzi scheme

One recent empirical study uncovered several significant and systematic biases in the SEC’s enforcement patterns and found indirect evidence to support the contention that “post-agency employment at higher salaries may operate as a quid pro quo in return for favorable regulatory treatment”

Some former SEC employees disclosed that they consulted with ethics officers regarding the work they intended to do on behalf of their clients before the SEC, but in many other statements, it is unclear whether the former employees discussed their post-employment plans with an ethics officer

Some statements indicate that the former employee did participate in or have responsibility for a related matter while they worked at the SEC, but that they discussed the matter with an ethics officer who advised them they could contact Commission staff on that issue on behalf of their new client

There were some inconsistencies in the SEC’s handling of FOIA exemptions in the statements requested by POGO—for instance, while the vast majority of statements disclosed the names of the former employees, in several cases this information was withheld

POGO recommends that Congress and the SEC:

Strengthen and simplify post-employment restrictions

Make post-employment statements publicly available online

Verify completeness and accuracy of post-employment statements

Strengthen restrictions for new employees coming from industry

Publicly disclose SEC recusal database and ethics waivers

Strengthen and utilize ethics enforcement authority

Extend post-employment regulations to other financial regulatory agencies

Review confidential treatment procedures and FOIA exemptions

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