Compliancex

The Securities and Exchange Commission soap opera continues.

The Wall Street Journal reported Monday that the SEC “has ordered an independent inquiry into allegations of sexual misconduct by current and former staff working for its office of the inspector general, according to a person familiar with the matter.” It is alleged that the misconduct compromised SEC investigations.

Precedent suggests that the agency would review the complaint internally, by the inspector general. But the SEC in this case has chosen to employ an outside investigator to avoid a “conflict of interest,” according to the Wall Street Journal.

Mr. David Kotz was the SEC’s Inspector General from December 2007 to January 2012. Mr. Kotz quickly became the highest profile Inspector General in the SEC’s history. During his reign, Mr. Kotz was an outspoken and highly critical provocateur of the agency and its employees bringing to light damaging and embarrassing activities including the internet porn scandal, real estate debacle, and the complete mismanagement of the Madoff matter.

As you can imagine, he was not well liked by the employees at the SEC. There were internal accusations that he created a climate of fear and intimidation which inhibited the ability of the staff to capably conduct their job without fear of reprisal.  Outsiders believed him to be an intrepid auditor, aggressively and diligently fulfilling his responsibilities by investigating and reporting his findings of internal misconduct, poor behavior and other failures.

Mr. Kotz , some say, was pushed out of the organization. He is currently with a private investigative firm in Washington, DC.

The saga does not seem to end. While Mr. Kotz is not named in this current matter, the misconduct is alleged to have occurred during his term as inspector general. In the Wall Street Journal he responded to the matter:

“As far as I know, the allegations do not involve me,” Mr. Kotz wrote in an email Monday night. He said he believes “there are no plans for either the integrity committee or the independent investigator to be investigating my conduct.”…

Mr. Kotz said the SEC lacks the power to probe his behavior as inspector general, since its duties concern only alleged violations of securities laws.

He said the inspector-general group to which the SEC also referred the allegations has no authority to investigate his conduct now that he is a private citizen.

Is this a case of an overzealous internal audit division going rouge or retaliation against a division that embarrassed the agency? What do you think? Please let us know your thoughts.