According to an Inspector General investigation, the SEC official tasked with helping the public navigate the agency’s complex system lied to investigators, added misleading information to reports to Congress and failed to record hundreds of entries into the agency’s tip program.
The investigative summary, dated Aug. 29, found that the Securities and Exchange Commission’s ombudsman told about 300 investors to file fraud claims themselves, instead of registering them in person with the agency’s internal tip program, as was required. When confronted in 2021, the ombudsman created a spreadsheet that falsely claimed tips created by others were made by her office, the report said. The problems emerged during a 2021 inspector general audit of the SEC’s tips, complaints and referrals (TCR) program, according to the investigative summary.
“We found that the former Ombudsman misrepresented facts in a written response to an OIG management draft letter regarding TCR’s practices,” the report states. “The former Ombudsman’s written response to the OIG’s letter was in direct contradiction to what the former Ombudsman conveyed to the OIG,” during its review of the TCR program.
The Office of the Inspector General, the SEC and the Office of the Ombudsman did not return messages seeking comment.
According to the summary, the office “submitted vignettes in the Ombudsman’s Annual Reports to Congress that were potentially misleading.” He added that the 2021 annual report has been amended to reflect that the incidents cited were made up and may not have actually occurred.
The report does not name the former ombudsman, but it directly points to portions of annual reports between 2017 and 2021 prepared by Tracey L. McNeil, the agency’s first ombudsman. McNeil was appointed in 2014 and left the SEC in April.
McNeil could not be reached for comment.
The charges stem from inspector general audits of the TCR program and the Office of Investor Education and Advocacy, according to a May 24, 2021 letter from former Inspector General Carl Hoecker to SEC Chairman Gary Gensler obtained by Bloomberg Law.
These audits included interviews with the Ombudsman and a review of contributions over the years of IAEA reports. The Office of the Ombudsman serves as the point of contact for hundreds of investors each year who want to report fraud or need help understanding which section of the SEC can provide assistance.
In 2020, the ombudsman received more than 300 direct reports of potential securities fraud or violations that the agency’s rules required to be reported to the TCR program. Instead, the ombudsman told nearly all callers to submit the tips themselves and did not fill out the forms in-house as required, the IG report said.
“(We were unable to reconcile the large disparity between the number of cases received and reported by the Ombudsman in FY 2020 as potential securities law violations/fraud, and the number of TCRs the Ombudsman filed,” wrote Hoecker in his 2021 letter. to Gensler.
Confronted by investigators, the ombudsman created a spreadsheet containing 14 cases that were said to follow the agency’s rules. In reality, the IG said, the document was fake and included 10 tips that had nothing to do with the office, according to the investigative summary.
The Tips, Complaints and Referrals program is the core of the SEC’s enforcement efforts and includes both reports to the agency’s whistleblower office and others in the enforcement office. The SEC issues tens of thousands of tips each year, virtually all of which must be entered into the system, the IG’s office wrote in 2021.
The goal is to ensure that tips about major fraud don’t slip through the cracks, as happened with consumer complaints about Bernie Madoff, R. Allen Stanford and others.
A Bloomberg review of the ombudsman’s contributions to annual and quarterly reports found that the official’s own written vignettes show those guidelines were not followed. For example, the bureau’s 2020 “Report on Activities” says a “retail investor in Europe” provided information about an “advance fee scam.”
But the Ombudsman never filed a TCR, according to that report.
“The ombudsman provided the investor with links to advance fee fraud guidance available on SEC.gov and recommended that he contact the IAEA for additional resources and assistance and submit a TCR to Enforcement,” the report said.
The official “also suggested that the investor refrain from sending the funds and consider consulting a private attorney for further advice.”
