SEC staffers call for an investigation of the guy investigating SEC staffers for not investigating fraud

BusinessWeek writes: The U.S. Securities and Exchange Commission’s in-house cop has castigated the agency for missing the Bernard Madoff fraud, spotlighted employees who viewed online pornography, and called for a criminal probe into the ethics of the SEC’s former top lawyer. His blunt reports have won Inspector General H. David Kotz admiration on Capitol Hill, where lawmakers summon him to testify about his efforts to improve the way the agency does business, and he is praised as a tough investigator who has been zealous in getting to the bottom of the SEC’s lapses in the runup to the credit crisis.

Inside the SEC, it’s not hard to imagine how he’s been received. While inspectors general are rarely beloved, a backlash against Kotz among staff and managers has grown in intensity and spread to the legal community outside the agency. Critics led by former SEC Chairman Harvey L. Pitt say Kotz is undermining the market regulator’s effectiveness. “For those who may be unaware of what is going on at the SEC, there is a reign of terror in effect,” Pitt wrote to about 90 securities lawyers in a September e-mail obtained by Bloomberg News. “People are afraid to write anything down, make decisions, or even take notes of telephone conversations, because the current IG monitors everyone’s e-mails, including the chairman’s, and starts investigations at the drop of a hat,” Pitt wrote.

In an interview, Pitt—a lawyer who has represented several people involved in Kotz’s investigations—said he is speaking out because Kotz “has to be held accountable.” Kotz’s critics complain that some of his reports lacked evidence of wrongdoing and unfairly damaged the reputations of those he accused. Kotz, 45, disputed his detractors in a written statement, saying his work has had “an extremely positive impact” on the SEC. “Whenever an inspector general is doing his or her job properly, there is naturally some level of apprehension on the part of agency employees of a possible investigation,” Kotz said. “However, we have made efforts to be very thorough, detailed, and fair in our reports.” In interviews, almost three dozen current and former SEC staff members—including managers, senior appointees, and nonsupervisors—raised concerns similar to Pitt’s....

Find out more at http://www.businessweek.com/magazine/fear-and-loathing-at-the-sec-11032011.html?chan=magazine+channel_news+-+politics+%26amp%3b+policy