THE SEC NEEDS A SPECIAL COUNSEL INVESTIGATION: SEC Enforcement Staff Accessed Adjudicatory Documents in Midst of Administrative Proceedings.

SEC released a statement yesterday admitting that “administrative support personnel from Enforcement, who were responsible for maintaining Enforcement’s case files, accessed [restricted] Adjudication memoranda via the Office of the Secretary’s databases.” This self-described “control deficiency” is actually an outrageous breach of ethics—and possibly law—by SEC that illustrates why the Constitution forbids housing prosecutorial functions and adjudicatory functions in a single agency.

SEC filed in Cochran simultaneously with publishing the statement, so Ms. Cochran was not informed of SEC’s “control deficiency” when it was discovered. NCLA and Ms. Cochran were only made aware of the Commission’s breach when it was publicly disclosed. The Commission has known about this issue long enough to hire outside investigators, conduct an audit with “dozens of interviews,” and collect documents. Yet critical details, including who knew what and when, remain undisclosed. If this breach of ethics had occurred in private litigation or before a federal court, it would raise red flags. SEC claims “this access did not impact the actions taken by the staff investigating and prosecuting the cases or the Commission’s decision-making in the matters.” At present, there is no way to verify that this breach did not impact Ms. Cochran’s case. To make matters worse, SEC hired an outside firm that regularly does millions of dollars of business with the agency to investigate the scandal. Hiring a firm with a conflict of interest to investigate a conflict of interest hardly inspires confidence.

Restoring the “controls” that were disregarded here is not enough. As this breach has demonstrated, it would be impossible to monitor the internal controls at SEC sufficiently to guarantee that agency staff would not make the same error again. A computer correction of a purported “control deficiency” cannot repair the all-too-human impulse to abuse power, win at all costs, and share information inside an agency. Whatever controls are baked into the software, none of those can remedy the inherent problems that combining the enforcement and adjudication power inside an agency create.

Agencies that combine enforcement and adjudication — as many do — are unconstitutional. But convenient for the government.

I posted this last week, but this story has gotten surprisingly little coverage so I’m posting it again. Understand: The “prosecutors” at the SEC illegally accesssed files belonging to the “judges.”

This raises serious questions about the trustworthiness of the SEC, and demands an outside investigation with subpoena power.