Breaking: SEC Lawyers Investigated for Insider Trading

[WSJ_law_blog]

Whoa boy. Another day, another black mark for the Securities and Exchange Commission. This just in: Two enforcement lawyers at the SEC are being investigated by federal prosecutors and the FBI for possible insider-trading violations, according to a report from the SEC’s inspector general (link not available). Click here for the WSJ story.

The criminal investigation, which was disclosed to SEC Chairman Mary Schapiro in a March 3 memo, came about after SEC Inspector General H. David Kotz conducted his own investigation into the matter and referred it to criminal authorities after discovering suspicious trading activity. The names of the two attorneys were redacted from the report, but Kotz said he has also recommended that disciplinary action be taken against them.

“Our investigation revealed suspicious activity, appearances of improprieties, and we identified stocks for which there is evidence that [attorney 1] and [attorney 2] may have traded on nonpublic information or engaged in insider trading,” the report said.

The investigation comes as yet another embarrassment for the agency’s enforcement division, which came under harsh criticism for its failure to detect Bernard Madoff’s $65 billion Ponzi scheme.

Since her confirmation, Schapiro has been working to restore the division’s image, hiring a former U.S. prosecutor as its new director to send a message that the agency is not afraid to go after big Wall Street players who violate U.S. securities laws.

We’ll update the story when we know more.