The SEC’s Own Report Says that It Missed Tips and Clues in a Giant Ponzi

Remember Friday April 16 when the Securities and Exchange Commission filed its high-profile fraud case against Goldman Sachs? How could you not? Every media outlet covered that complaint as the SEC was publicly tooting its own horn. (“We got those evil Goldman people!”)

Were you also aware that on that same day the SEC’s own Office of the Inspector General (OIG) released the 159-page Report of Investigation, Case No. 01G-526 Investigation of the SEC’s Response to Concerns Regarding Robert Allen Stanford’s Alleged Ponzi Scheme (ROI)? You might recall the Stanford case, in which Allen Stanford was allegedly running a Ponzi scheme since as far back as 1997. Moreover, the SEC’s ROI suggests that Stanford’s scheme was able to flourish because of questionable “institutional influences” within the SEC.

You missed that Stanford post mortem report? Course you did, the report was issued under the heavy flak provided by the Goldman case. Now the SEC Inspector General David Kotz will have to respond to U.S. House Representative Darrell Issa’s (R-CA) April 16 letter calling for a probe of the circumstances of the timing of the filing of SEC v. Goldman. Some have alleged improper political motives, which the SEC has denied.

Anyway, while you are pooh-poohing those off-the-wall conspiracy theories, consider this tidbit posted on the SEC’s website. It seems that on April 22, SEC Inspector General Kotz sent a Memorandum to SEC Chairman Mary Schapiro, and a copy to the SEC’s Ethic Counsel William Lenox. The Memorandum is part apology, part reiteration, part bizarre.

Red Flag Was Raised in 2002
Section IV of the ROI states that the SEC had received a letter dated October 28, 2002 from, a citizen of Mexico who raised concerns about Robert Allen Stanford and his companies, and their certificates of deposit in which the writer’s mother had invested. I have reprinted the relevant section below:

C. During the 2002 Examination, the FWDO Enforcement Staff Received a Letter From the Daughter of an Elderly Stanford Investor Concerned That the Stanford CDs Were Fraudulent

On December 5, 2002, [Harold] Degenhardt [then head of the SEC’s Ft. Worth office] received a letter dated October 28, 2002, from a citizen of Mexico who raised concerns about Stanford similar to those raised by the Examination staff. See October 28, 2002 Letter from to SEC Complaint Center, copying Degenhardt (the “Letter”), attached as Exhibit 76. The Letter stated:

My mother is an old woman with more than 75 years of age
and she has all her money my father inherited to her for his
life work in CDs of Stanford Bank. This is the only money
my mother has, and it is necessary for my mother, my
sisters and me for living. My mother put it in the United
States because of the bad situation in Mexico and because
the most important thing is to look for security. …
I am an accountant by profession and work for a large bank
in Mexico. I know some banking regulations of my
country that are very different from practices in Stanford
Bank and for that reason I am very nervous. Please look at
this bank and investigate if everything is honest and
correct. There are many investors from Mexico in this
bank. My questions and doubts are listed here.

1. Stanford says the CDs have insurance. My mother
receives two statements of accounts. One from Stanford
bank in Antigua with the CDs and another one from
Stanford and Bear Stearns in New York. I know Bear
Stearns is a very good company, but the statement of Bear
Stearns only has cash that my mother uses to take out
checks. This cash is the interest that the CD pays.
Is the bank in Antigua truly covered by insurance of the United States Government?

2. The CD has a higher than 9% interest and I know
other big banks like Citibank pay interest of 4%. Is this
possible and secure?

4. In December of 1999 the bank had a lot of
investments in foreign currencies and in stocks. In all the
world many stocks and foreign currencies came down in
2000. If a lot of money was in investments that came
down, how did the bank make money to pay the interest
and all of the very high expenses I imagine it has. …

5. The accounting company that makes the audit
(C.A.S. Hewlett & Co) is in Antigua and [no]body knows.
I saw the case of Enron with bad accounting and I am
preoccupied with another case of fraud accounting. Why is
the auditor a company of Antigua that [no]body knows and
not a good United States accounting company?

I know some investors that lost money in a United States
company named InverWorld in San Antonio. Please
review very well Stanford to make sure that many investors
do not get cheated. These investors are simple people of
Mexico and maybe many other places and have their faith
in the United States financial system.

Without responding to, or investigating the writer’s concerns, the SEC Staff forwarded the Letter to the Texas State Securities Board (TSSB) on December 10, 2002. No one called the writer back. No one communicated with her. Frankly, the SEC might just have well folded the letter into a paper airplane and tossed it out its window. Given that the letter was received by the SEC staff on December 5, it’s surprising that those dutiful industry cops sat with the missive for a full five days before passing it on to the State of Texas. Of course, December 5 was a Thursday, so, to be fair, the staff only had three business days to review the thoughtful warning (if you don’t include the date of receipt). And Christmas was only 20 days away. Then there was New Year’s . . .

We Got Nuthin’ From Nobody
Based upon interviews with TSSB Commissioner Denise Crawford, and with a TSSB employee whose name was redacted in the official report, the OIG was advised that the TSSB had searched its files and found no record of receiving the Letter. Crawford stated that she was confident that the TSSB had not received the Letter from the SEC because the TSSB’s internal tracking system for such correspondence would have evidenced its receipt. Further, Crawford and the unnamed TSSB employee all stated in interviews that they had never seen the letter.

That’s pretty much the fate of the letter as of the end of 2002. Eight years later, the tale takes an odd twist. Turns out Crawford’s staff at the TSSB found the letter sometime after talking to the SEC’s OIG. Guess how the letter—something like the Harry Markopolos letter warning the SEC of Madoff’s Ponzi—was found? A TSSB administrative assistant was cleaning out a file cabinet that contained “miscellaneous information” and stumbled upon it.

TSSB noted that the letter should not have been filed in the cabinet where it was found and that it clearly had not been handled properly or in accordance with TSSB’s procedures for handling such correspondence. TSSB staff provided no further information or explanation for the mishandling of this letter or their failure to locate it during the course of our investigation.

Final Thoughts
Although it’s the little suspicions and minor leads that often build into the historic cases, someone has to painstakingly stack the bricks, slap on the mortar, and build the wall . . . brick by brick by brick. In short, someone has to do some work and build the case bit by bit. Unfortunately, the regulators seem to need the fully gift-wrapped evidence to bring a case.

Magistrate Orders King’s Extradition

Former administrator of the Financial Services Regulatory Commission (FSRC) Leroy King leaves the court, Monday, after Chief Magistrate Ivan Walters ordered his committal for extradition on allegations of fraud related to R Allen Stanford’s alleged US$8 billion ponzi scheme. King, who was on bail since his arrest in June last year, underwent surgery on his right eye. To King’s left is a senior police officer. (Photo by Julian Rogers)

Almost 10 months after he was arrested on several fraud-related charges in connection with an alleged US $8 billion ponzi scheme perpetrated by R Allen Stanford, and after several adjournments, Chief Magistrate Ivan Walters ordered the committal for extradition of Leroy King, former chief executive officer of the Financial Services Regulatory Commission (FSRC).

Minister of External Affairs Baldwin Spencer has to approve the decision that will allow the one-time FSRC boss to be returned to the United States to answer the charges in a court of law.

Meanwhile, the court informed the accused that he has 15 days to exercise his right to file a writ of habeas corpus seeking to set aside the magistrate’s ruling. Reliable reports are that the writ has already been drafted. Should the application be filed, the matter could be tied up in the courts for months to come.

The highly anticipated court decision on the extradition request made by the US last year was delivered yesterday in the St John’s Magistrates’ Court in the presence of King’s relatives and friends.

Following his decision, Magistrate Walters ordered King remanded to Her Majesty’s Prison to await the decision. However, the magistrate later granted King bail under section 11(9) and (7) of the Extradition Act upon application by King’s lawyer, Queen’s Counsel Dane Hamilton, with no objections coming from the Director of Public Prosecutions (DPP) Anthony Armstrong who had conduct of the extradition request.

Hamilton made the bail application on medical grounds.

The lawyer told the adjudicator that King, who appeared in court yesterday with a bandage over his right eye, underwent surgery on Saturday April 24 to reattach the retina in his right eye and the ophthalmologist, Dr Ian Walwyn, who performed the surgery recommended that he return for regular treatment and remain in a safe, clean, healthy and secure environment, among other stipulations.

The attorney submitted medical reports in support of information that King’s surgery to the eye, without proper follow-up care, would result in blindness.

He further gave the court additional documents, from different doctors, in support of other medical conditions, which place restriction on physical activities.

In light of the application, Magistrate Walters said bail would be extended to the accused but instead of the $500,000 with a $100,000 cash requirement which King was granted on his first appearance in court last June, the magistrate increased the amount.

Now, King’s bail is $600,000, making it necessary for an additional $10,000 cash deposit to be paid to the court before he was released.

The court also asked for a copy of the title deed to the property that King’s surety said was valued at $200,000 and further asked that a caution be placed on said property.

The other bail conditions previously ordered remain the same.

The accused must continue to report to the St John’s Police Station twice daily and must not leave his home unless accompanied by one of his two sureties except in the case of a medical emergency. His travel documents will remain in police custody.

Before he made his decision on the bail application known, Magistrate Walters noted that King’s co-accused, some of whom also have medical conditions, are all in jail in the US awaiting trial.

He however stated that he is cognisant of the conditions of the local prison where the cells are overcrowded and conditions not conducive to the type of medical care King would require.

King, who was also the FSRC administrator, is accused of 10 counts of conspiracy to commit mail fraud, seven counts of conspiracy to commit wire fraud, conspiracy to commit money laundering and conspiracy to obstruct the SEC as an accomplice to Allen Stanford’s alleged crimes.

The complaint accuses King of conducting sham audits and examinations of Stanford International Bank (SIBL), an offshore bank located in Antigua, in exchange for large sums of money and other bribes while he allegedly made sure that the SEC did not peruse the offshore bank’s investment records.

The DPP had submitted that King had sought advice from Stanford’s lawyers on what to say in response to inquiries being made by the Eastern Caribbean Central Bank (ECCB) as the investigation into the alleged scheme got under way.

Armstrong said that King prepared letters in his handwriting, addressed to one Nigel Streete, bearing the fax number for Maurice Alvarado the general legal counsel for Stanford Financial Company (SFC), seeking advice on matters raised by the ECCB concerning the supervision of SIBL, Stanford Trust Company Limited (STCL) and other affiliate companies.

Armstrong said the nature of the correspondence shows that there was more than a “good friend” relationship between the SFC counsel and King.

In the letter King allegedly wrote, “To America’s best and greatest attorney, Mr MA, I am sending you two versions. One short, one with a little more knock-out punch. I prefer the shorter version; a little more subtle and diplomatic.”

Armstrong told the court that King had written to the SEC stating that the FSRC had concluded that “any further investigation of ‘possible’ fraudulent activity of SIBL is unwarranted. The FSRC is very concerned as to why the SEC would impute such serious allegations against SIBL. It is the opinion of the FSRC the SIBL has conducted its banking business to date in a manner the FSRC considers to be fully compliant.”

The DPP submitted that the correspondence shows that the accused knew of and facilitated the ponzi scheme.

In a second letter, said to be in King’s handwriting, he wrote, “I would like to include but it does not seem to flow well with the above. Don’t want to over-kill or seem too arrogant. Any other ideas? Must conclude tomorrow. Will send package to include a copy of the annual reports for SIBL and STCL. I am sending a message to these guys that institutions concerned are not run of the mill, they are great quality institutions and the numbers speak for themselves. Thanks a million. Lee.”

The DPP said that the letter, statements from James Davis, the former chief financial officer of SFC, as well as substantive independent data are corroborative that King supported the scheme.

Davis is also an accused in the matter and he has pleaded guilty.

The court had heard that between February 2, 2005 and February 2, 2009 there had been quite a number of cash deposits made to one of King’s two accounts at JP Morgan Chase whilst similar deposits were made into the other account between January 9, 2003 and February 4, 2009.

The prosecutor had also said that evidence obtained from an independent auditor into SIBL’s financial statements showed that the investments the company alleged to have made, did not exist or were grossly inaccurate having been overstated.

However, Armstrong said that King reported to SEC officials that the offshore bank was solvent and a good quality institution which was fully compliant with the requisite offshore banking regulations.”

In response, Hamilton QC had argued that while King is accused of making false assurances that there was no cause for concern about SIBL and collaborating with Stanford to withhold significant information requested by the SEC, that could not be so because King was never the supervisor of banking and therefore could not influence the proper or improper examination of SIBL’s books.

Further, the Queen’s Counsel stated that King’s alleged refusal to divulge information was not a crime, his actions were in fact “within the four corners of the law.”

Hamilton also said that the statements given by the accused Davis are incapable of establishing that King was involved or that he took part in “the ludicrous blood oath ceremony” for the stated purpose, or that he received bribe money from Stanford to obstruct the SEC investigation. The Queen’s Counsel had made several other submissions, as did the DPP.

Under the Extradition Act, persons can only be extradited following a bilateral agreement for crimes which carry a penalty exceeding 12 months in prison.

King is the second person whose extradition to the United States has been ordered this year. Last week Newfield resident Gordon Weston was taken to the United States on allegations he attempted to murder Earl Matthias, among other related offences committed some five years ago

Antiguan Charged in Stanford Case Ordered to U.S.

Antigua’s former top banking regulator, Leroy King, was ordered extradited to the U.S. to face charges he helped financier R. Allen Stanford conceal a $7 billion fraud scheme, Antigua’s top prosecutor said.

Director of Public Prosecutions Anthony Armstrong said that Chief Magistrate Ivan Walters ordered King removed to the U.S. in a decision issued today. Armstrong, who argued for the removal, said King has 15 days to appeal the decision to the nation’s High Court.

King was formerly chief executive officer of Antigua and Barbuda’s Financial Services Regulatory Commission. He has been under house arrest in Antigua since June, when he was indicted by a federal grand jury in Houston for allegedly accepting bribes from Stanford to mislead U.S. securities regulators.

His lawyer, Dane Hamilton Sr. of St. John’s, Antigua, did not immediately return a call seeking comment on the court’s ruling. Andy Laine, a spokesman for the U.S. State Department, said he could not immediately comment.

U.S. prosecutors allege Stanford and his co-conspirators took money from new investors to repay earlier investors who bought allegedly bogus certificates of deposit from the Antigua- based Stanford International Bank Ltd.

Blood Oath

King and Stanford took a blood oath in 2003 to support the alleged fraud scheme, which netted King hundreds of thousands of dollars in bribes, according to a document signed by former Stanford chief financial officer James M. Davis when he pleaded guilty to criminal charges in the probe last year.

Stanford, who is being held without bail pending a January 2011 trial, has denied all allegations of wrongdoing. He also faces parallel charges in a civil enforcement action filed by the U.S. Securities and Exchange Commission.

The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank Ltd., 09cv298, U.S. District Court, Northern District of Texas (Dallas).

SEC says its ex-Fort Worth official let R. Allen Stanford off hook

Is Spencer Barasch the man who single-handedly let alleged Ponzi schemer R. Allen Stanford off the hook three times, costing investors more than $7 billion?

Or is he an honest Dallas defense attorney unfairly blamed for the failings of a government regulator?

The Securities and Exchange Commission’s inspector general has a 151-page report that says he was the former. It skewers Barasch, former head of the SEC’s enforcement efforts at its Fort Worth office, as a poster child for an agency that critics say missed one of the biggest investor scams of our generation.

The report said that over a seven-year period Barasch rebuffed repeated pleas from agency staff to investigate Stanford’s offshore bank and his oversized investment claims. An SEC inquiry likely would have stopped the alleged Ponzi scheme as early as 1998, the inspector general said.

Barasch’s supporters at the SEC and now in his world of white-collar private practice say he’s being scapegoated.

“He didn’t do anything illegal – I guess the worst you could say about him was that he had used poor judgment,” said Mary Lou Felsman, a retired SEC attorney who worked with Barasch in Fort Worth.

The 52-year-old partner at the Dallas office of Andrews Kurth LLP isn’t talking. His firm issued a supportive statement after last Friday’s detailed report, saying Barasch had served the SEC with “honor, integrity and distinction.”

But his actions raise questions about the culture of the SEC’s Fort Worth office, charged with regulating securities trading in Texas and three other states.

The office was tarnished previously when one of its top trial attorneys, Phillip Offill, was convicted of masterminding penny stock fraud after he left the commission. Offill, a former pal of Barasch’s, was sentenced to eight years in federal prison Friday.

Outrageous claims

Federal officials contend that Stanford orchestrated a Ponzi scheme by advising clients to invest more than $7 billion in certificates of deposit from the Stanford International Bank on the Caribbean island of Antigua.

Stanford’s lure, according to authorities, was a promise of outlandish returns – more than 10 percent a year. In 2002, when worldwide markets fell 25 percent, Stanford said his portfolio returned better than 12 percent, which SEC lawyers thought to be fraud.

In 1998, Barasch’s first year as enforcement chief, an SEC examiner recommended pursuing evidence that Stanford was promising investors unlikely rates of return, the inspector general’s report said. Barasch declined.

Felsman said she was stunned by the decision. For an enforcement chief to turn down an examiner’s recommendation was unprecedented, she and two other former SEC lawyers said.

“They almost always said yes,” said Felsman.

According to the inspector general, Barasch told an SEC attorney in 2009 that he discounted the 1998 request after he called Stanford’s Dallas attorney, Wayne Secore, asked if there was a case and was assured that there wasn’t.

Barasch told investigators he didn’t recall saying that and said taking an opposing counsel’s word at face value would be “absurd.” Secore, a former SEC attorney, didn’t respond to calls.

The report also said Barasch dismissed investor complaints about Stanford in 2002 and 2003 and quelled two other staff efforts to investigate Stanford – one in 2002 and one immediately before he left the SEC in April 2005.

In 2005, the report said, an SEC staff attorney presented the agency’s latest findings at a regional meeting of securities law enforcers attended by Barasch. The audit showed growing concern that the alleged Ponzi scheme was growing and putting billions of dollars at risk.

During the presentation, Barasch was said to look “annoyed.” Afterward, he reportedly told the attorney he had “no interest” in bringing action against Stanford.

“I thought I’d turned in a good piece of work and was talking about it to significant players in the regulatory community,” Victoria Prescott, the attorney, said in the report. “And I no sooner sit down, shut up and the meeting ended, but then I got pulled aside and was told this has already been looked at and we’re not going to do it.”

In April 2005, Barasch announced he was leaving the SEC for Andrews Kurth. After he left, examination lawyers resubmitted the case to enforcement staff and pleaded with them to go after Stanford.

A formal investigation was started in 2006, but agency red tape and internal squabbling prevented the SEC from actually filing a civil lawsuit against Stanford until February 2009.

Among the reasons given by Barasch and others for why Stanford wasn’t looked at:

•Stanford initially had few U.S. investors.

•Getting subpoena power to access Stanford’s offshore bank’s financial documents was considered difficult.

•The case initially didn’t have victims complaining about losses because Stanford was still taking in enough money to pay returns.

It also was perceived to be a difficult case to make work. The report blames a short-sighted mentality at the Fort Worth office, citing lawyers there who said a quest for “stats” on convictions made officials gun-shy on tougher cases. That approach, the report said, came from Barasch and now-retired director Harold Degenhardt, who didn’t return calls for comment.

Personality clashes

Barasch’s management style and ego clashed with some coworkers and drove some out of the SEC, say former coworkers.

“Spence was a really bright guy, but I didn’t trust him because he lied a lot,” said Hugh Wright, whom Barasch replaced as head of enforcement in Fort Worth. Wright, who is now retired, headed up the regulatory side of the SEC office after Barasch took his job. “He told you want you wanted to hear.”

Others who worked with Barasch at the SEC said making enemies came with the territory.

“Animosity toward Spence was more a function of what his job was at the SEC instead of who he is,” said Jeffrey Ansley, a partner at Bracewell & Giuliani LLP in Dallas. Barasch hired Ansley to work at the SEC’s Fort Worth office, where he stayed for three years before moving to the Department of Justice around 2003.

“When you look at how many people Spence supervised, the odds statistically say there are going to be people who are going to take issue with him,” Ansley said.

More recent coworkers laud Barasch’s professionalism, though they recognize that he’s not always easy to work with.

“He doesn’t pull punches with the attorneys who work for him, but his criticism was always constructive and professional,” said Kara Altenbaumer-Price, who worked with him at Andrews Kurth for more than two years. “It was the sort of constructive criticism that makes young lawyers better.”

Alan Buie, an assistant U.S. attorney who worked under Barasch at the SEC, said Barasch was a sharp and dedicated enforcement chief who “was truly passionate about protecting investors and serving the public.”

“We took on plenty of big cases, and anybody who thinks we didn’t just really isn’t looking at the whole picture,” said Buie, who left the SEC in October 2005. Buie and other current SEC attorneys cited complex trading cases against Houston-based Dynegy Inc. and Royal Dutch Shell Group as examples.

Finding new work

Barasch’s choices after leaving the SEC also rattled regulators.

Just two months after leaving the agency, he asked its ethics branch for permission to represent Stanford, which was denied. Agency officials believed that Barasch’s involvement with the Stanford deliberations while at the SEC permanently barred him from doing work for Stanford.

Despite that, Barasch did do a small amount of work for Stanford in October 2006, in apparent violation of rules. The SEC has referred the matter to the State Bar of Texas.

Stanford personally wanted Barasch for his legal team in 2006, instructing his advisers to find him and bring him on board. Informed about the SEC’s ethics decision, Stanford wrote in an e-mail: “This is bs and I want to know why the SEC would/could conflict him out.”

Barasch currently supervises three attorneys at Andrews Kurth in a growing securities law practice. Partner pay at Andrews Kurth ranges wildly, attorneys familiar with the firm say. The most successful can see $2 million in annual pay, though none could say how much Barasch earns.

Barasch’s efforts to represent Stanford reflect the constant pressure to find new revenue as a new partner at a firm, said Michael Hurst, a Dallas attorney who has hired Barasch as an expert on cases. “Stanford is a rainmaker for not just white-collar attorneys but the entire civil practice,” he said.

Barasch’s e-mail to the SEC seeking permission to represent Stanford echoes that: “Every lawyer in Texas and beyond is going to get rich over this case. Okay? And I hated being on the sidelines.”

Barasch also showed interest in representing another well-known investor, Mark Cuban, in the SEC’s suit against the Dallas billionaire.

On Nov. 17, 2008, regulators charged the Dallas Mavericks owner with insider trading. Cuban immediately announced that he’d hired Paul Coggins, a well-known lawyer and former U.S. attorney.

In an e-mail to a person he thought could persuade Cuban to hire him, Barasch wrote that Coggins was a “blow hard [who] doesn’t know anything about securities, and has no name appeal or clout with the SEC.”

Barasch also suggested he could influence the SEC attorneys involved with the complaint against Cuban.

“I am friends with and helped promote two of the guys who signed the Complaint against Mark,” Barasch wrote, according to a copy of the e-mail obtained by The Dallas Morning News. “Someone should tell Mark to look at my profile on my firm website, my SEC press releases, and advise Mark to add me to his defense team.”

The SEC’s case was dismissed by a federal judge in July 2009. Coggins declined to comment on Barasch’s e-mail.

Andrews Kurth reiterated its support for Barasch this week, saying he “will remain a valued member of the Andrews Kurth team where he provides our clients with the highest possible quality of advice and counsel.”

Meanwhile, Stanford is in jail in Houston, awaiting trial on criminal charges filed by the Department of Justice in June.

Barasch is not part of his legal team.

TIMELINE: SEC WAITS YEARS TO LAUNCH INVESTIGATION OF R. ALLEN STANFORD

1997: SEC Fort Worth examiners audit Stanford Financial Group and conclude it may be a Ponzi scheme.

1998: SEC enforcement, led by Spencer Barasch, quickly closes initial inquiry into Stanford, saying the plan lacked U.S. investors.

2002: SEC examiners again refer Stanford to enforcement. Enforcement ignores the research and says it will send a letter of complaint to the Texas State Securities Board, which never received the letter.

2003: SEC receives two complaints that Stanford is operating a Ponzi scheme, but it does nothing.

2004: SEC examiners again prepare a case against Stanford.

2005: Barasch Barsach and office head Harold Degenhardt tell examiners they will not take action against Stanford.

April 2005: Barasch leaves SEC for Andrews Kurth; SEC staff immediately refers Stanford case to enforcement staff.

2006: SEC officially opens investigation into Stanford.

2009: SEC sues Stanford in February; Justice Department adds criminal charges in June.

SOURCES: SEC inspector general, Dallas Morning News research

SEC staff investigating financial crimes ‘surfed porn websites while economy crashed’

Senior staff paid by taxpayers to police the financial system during the economic crash spent hours surfing pornographic websites, according to a leaked watchdog report.

Officials at the Securities And Exchange Commission – an independent agency which investigates financial crimes – used government-issued computers to look at sites such as naughty.com, skankwire and youporn.

Thirty-three probes of employees looking at explicit images were carried out by the SEC’s inspector general, according to the memo.

Report: The memo was written by David Kotz in reponse to a request from a Republican senator

Thirty-one of these were from 2008 – the period which saw the economic meltdown.

It comes as U.S. President Barack Obama called for more government regulation over the financial industry.

A senior attorney at the SEC’s Washington headquarters spent up to eight hours a day looking at and downloading pornography. When he ran out of hard drive space, he burned the files to CDs or DVDs, which he kept in boxes around his office. He agreed to resign, an earlier watchdog report said.
An accountant was blocked more than 16,000 times in a month from visiting websites classified as ‘sex’ or ‘pornography’. Yet he still managed to amass a collection of ‘very graphic’ material on his hard drive by using Google images to bypass the SEC’s internal filter, according to an earlier report from the inspector general. The accountant refused to testify in his defense, and received a 14-day suspension.
Seventeen of the employees were ‘at a senior level’, earning salaries of up to $222,418 (£144,689).
The number of cases jumped from two in 2007 to 16 in 2008. The cracks in the financial system emerged in mid-2007 and spread into full-blown panic by the fall of 2008.
Darrell Issa, the top Republican on the House of Representatives Committee on Oversight and Government Reform, said it was ‘disturbing that high-ranking officials within the SEC were spending more time looking at porn than taking action to help stave off the events that put our nation’s economy on the brink of collapse’.

He said in a statement that SEC officials ‘were preoccupied with other distractions’ when they should have been overseeing the growing problems in the financial system.

Former SEC spokesman Michael Robinson said he shares the public’s outrage.

‘That kind of behavior is just intolerable and atrocious,’ he said.

The SEC declined to comment.