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Complaint Alleges SEC Watchdog Retaliated Against Whistleblowers

Who blows the whistle on the whistleblowers?

Nobody – if they can help it.

In yet another example of big-government hypocrisy allegedly committed by an office meant to hold other government employees accountable, the Wall Street Journal is reporting that the watchdog for the Securities and Exchange Commission has himself become the subject of complaints by several whistleblowers. At least two employees working for SEC Inspector General Carl Hoecker have filed complaints to a different federal whistleblower-protection agency, alleging that he and his senior staff retaliated against them for calling out misconduct within the inspector general’s office, according to the Wall Street Journal.

The SEC watchdog encourages staff at the top securities regulator to blow the whistle on misconduct and fraud involving SEC employees, from insider trading to expense fraud.

The whistleblowers also reported the allegations to Sen. Chuck Grassley, chairman of the bipartisan Senate Whistleblower Protection Caucus, which focuses on laws and other issues affecting whistleblowers. A Grassley spokesman said he is “looking into the matter, and his office intends to reach out to the whistleblowers in question to see what can and should be done."

Of course, the office has vigorously denied the allegations. Raphael Kozolchyk, a spokesman for the SEC IG, said “a number of the claims contain significant factual inaccuracies, while others are grossly misleading.” He added that the office does “not comment on ongoing personnel matters."

The whistleblower-retaliation allegations stem from complaints made to Hoecker last year by at least three officials in his office. The complaints allege misconduct by two of their fellow employees. The Office of Special Counsel, whose mission is to protect federal whistleblowers, is reportedly investigating the retaliation allegations. The office has the power to prosecute cases before an independent board, which can order agencies to pay compensation to harmed employees. A spokeswoman for the office declined to comment.

Initially, the two complainants at the center of the allegations filed complaints with the head of the SEC IG office – which operates independently of the agency it’s supposed to monitor – after noticing that two employees, a senior supervisor and one of his subordinates, were engaging in what appeared to be an office affair. The two would sneak away for “long lunches” during workdays, something the whistleblowers said amounted to time and attendance fraud.

The allegations center on potential time and attendance fraud by a supervisor in the inspector general’s office and a junior subordinate. The complainants said the two employees regularly disappeared together for several hours during workdays and engaged in inappropriate conduct in the office. Neither of the two employees responded to requests for comment.

 

The SEC Office of Inspector General referred the complaints to a federal prosecutor, who declined to pursue the case, according to documents reviewed by the Journal. The office’s own civil internal investigation of the complaints found insufficient evidence to conclude the two employees had an inappropriate relationship, but noted that “the supervisor created the appearance” of such a relationship, according to a public report earlier this year that didn’t name the individuals concerned. The report said the conduct had been addressed by management with the two individuals through remediation plans.

 

The whistleblowers’ concerns focus on how Hoecker handled their complaints. Inspectors general are meant to encourage whistleblowing. The whistleblowers allege they instead suffered retaliation and that the internal investigation wasn’t sufficiently independent to be fair.

Initially, the case was assigned to two senior investigators at the agency, one of whom had hired the two employees at the center of the case. But then Hoecker intervened by assigning one of the two employees under scrutiny to rewrite the agencies procedures to remove certain sections prohibiting conflicts of interest between employees. The two whistleblowers also said they were retaliated against, though it’s not clear exactly how.

Carl Hoecker

In their initial complaint, the whistleblowers alleged that Hoecker refers to the SEC commissioners as his “bosses” – which shouldn’t be true for the supposedly independent inspector general’s office.

The SEC Office of Inspector General internal probe was initially jointly led by two senior officials in the office, including a senior investigator who hired and supervised the two employees at the center of the complaints, the people familiar with the matter said. The investigator helped interview the complainants and refer the issue to prosecutors, according to documents obtained under public-records requests.

 

Hoecker also appointed one of the two employees under investigation to help coordinate a review of procedures in the inspector general’s office, according to documents reviewed by the Journal. The review, overseen by the inspector general, removed language designed to prevent conflicts of interest affecting internal investigations, such as allegedly happened in this case, according to the documents.

 

The complaints additionally allege that Mr. Hoecker, whose office is by law independent from the SEC, regularly refers to the commissioners who run the agency as his “bosses.”

Eventually, the IG’s office referred the complaints to a federal prosecutor who declined to take action.  The office’s own civil internal investigation of the complaints found insufficient evidence to conclude the two employees had an inappropriate relationship, but noted that “the supervisor created the appearance” of such a relationship, according to a public report earlier this year that didn’t name the individuals concerned. The report said the conduct had been addressed by management with the two individuals through remediation plans.

Hoecker, 60, was appointed as the SEC watchdog in 2013. More importantly, he also serves as chairman of the investigations committee of the Council of the Inspectors General on Integrity and Efficiency, which represents more than 70 inspectors general across the federal government. The council earlier this year said it had reviewed the whistleblowers’ allegations of retaliation by Hoecker and decided not to take any action, according to documents seen by the Journal. A spokesman for the council declined to comment.