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Chief Compliance Officer, a Former SEC Staffer, Indicted for Stealing Confidential Investigation Information

 

The U.S. Attorney for the Eastern District of New York has indicted the former Chief Compliance Officer of a private equity firm for obstructing justice and illegally accessing confidential government information.  According to the indictment and press accounts, the defendant misused his position and access as an SEC employee to obtain information about a pending investigation of the private equity firm while negotiating his new position.  The firm itself is being investigated for sales practice violations. The defendant faces more than 20 years in prison.

This case is Exhibit A for why there should be limits on the revolving door between the regulators and firms they are charged with regulating.  An inherent conflict of interest exists when a former regulator represents a firm being examined or investigated.  The Project On Government Oversight (POGO) published a report in 2013 titled “Dangerous Liaisons: Revolving Door at SEC Creates Risk of Regulatory Capture,” outlining the scope of the problem.  At the very least, we would recommend a 12-month cooling-off period before a private firm could hire a former regulator and an outright ban if the firm is currently under investigation.