Bad Watchdog Season 2 launches June 20.

Holding the Government Accountable

The Case of the Missing Inspector General Reports

Inspector General (IG) investigations expose some of the most egregious examples of misconduct by federal officials—everything from whistleblower retaliation to the abuse of taxpayer dollars—and the public has every right to see the (non-classified, non-redacted) results of these investigations. Yet in many cases, agencies have been known to over-redact, delay, or completely block the release of IG investigative reports. As we discussed in our 2008 report on IG independence, restricting public access to these reports undermines the important work performed by IGs, and creates a significant barrier to holding agency officials accountable.

A few weeks ago, Senators Charles Grassley (R-IA) and Tom Coburn (R-OK) released letters from 13 IGs describing how their agencies have interfered with investigations. Among other things, the senators asked the IGs to provide “biannual reports on all closed investigations, evaluations, and audits conducted by your office that were not disclosed to the public.”

As the senators continue their review, we hope they take a close look at the Securities and Exchange Commission (SEC), which has a troubling history of withholding records from the public, including investigative reports issued by the IG.

On the SEC IG’s website, you won’t find any investigative reports issued prior to 2009, and there are only eight reports posted since then. Yet the IG’s semiannual reports to Congress describe dozens of investigative reports that have been issued to SEC management over the past two years.

To be fair, most of the SEC IG's audit and evaluation reports dating back to 1994 have been posted online. But when it comes to investigative reports—in which the OIG's Office of Investigations looks into "allegations of violations of statutes, rules and regulations, and other misconduct by Commission staff and contractors—very few have ever been released to the public.

After reviewing the IG’s semiannual reports, we’ve counted at least 27 investigative reports issued since 2009 that have not been posted online. These reports cover everything from insider trading by SEC employees to botched investigations of fraudulent companies. There are at least two reports—one on the SEC’s bungled investigation of Allied Capital, and one on allegations of whistleblower retaliation at the SEC’s Ft. Worth Regional Office—that have been redacted and released, but are nowhere to be found on the SEC or IG’s websites.

Even when the IG’s reports are released to the public, the SEC can still diminish their impact. In the case of the Allied report, for example, the SEC redacted the name of the official who became a registered lobbyist for Allied after he left the SEC and illegally attempted to access hedge fund manager David Einhorn's telephone records, even though his name had already been disclosed in Einhorn’s book and various media reports.*

The SEC also has a troubling history of releasing IG reports on slow news days. As reported by the AP, the IG identified this problem in its latest report on the timing of the SEC’s charges filed against Goldman Sachs (the IG was investigating whether the timing was politically motivated or intended to overshadow the release of another IG report on the SEC’s botched investigation of the Stanford Ponzi scheme):

[SEC Office of General Counsel Attorney] sent an email to a personal friend on the day that the Goldman action was announced and the OIG Stanford Report was released, stating about these two matters, “What a coincidence that those two stories came out today. ;-)”

...These suspicions were likely fueled by the recent history of the SEC releasing OIG reports that criticized the agency on “slow” news days... The SEC released the OIG’s 457-page Report of Investigation (“ROI”) concerning the failure of the SEC to uncover Bernard Madoff’s Ponzi Scheme after 5:00 p.m. on September 4, 2009, the Friday before a three-day holiday weekend....The SEC then released the hundreds of exhibits supporting the OIG’s ROI concerning Madoff late on Friday, October 30, 2009.

...In addition, the OIG ROI concerning the SEC’s failure to vigorously pursue Enforcement action against W. Holding Company, Inc., and Bear Sterns & Co., Inc., was made public on Friday, October 10, 2008....Consistent with this pattern, on the same Friday that the OIG Stanford Report was publicly released and the Goldman action was announced, April 16, 2010, the SEC also publicly released the OIG’s ROI concerning the SEC’s failure to timely investigate allegations of financial fraud at Metromedia International Group, Inc., which had been submitted to the SEC by the OIG almost two months earlier.

As the report suggests, it’s the agency—specifically, the Office of General Counsel—that’s in charge of redacting IG investigative reports, and the reports can only be released through a vote by the SEC commissioners. The IG elaborated on this issue at a September hearing before the Senate Banking Committee, stating that his office does not have the authority to make decisions on nonpublic information by itself, even though it has asked for such authority.

In recent testimony before the House Financial Services Committee, POGO’s Angela Canterbury recommended that “[d]eterminations of FOIA exemption applicability to OIG reports, particularly regarding investigations, should be independently reviewed by the FOIA office or a FOIA officer within the OIG, not by the Chair or OGC.”

We’re hopeful that the next Congress will be receptive to strengthening IG offices across the government.

*(Full disclosure: Einhorn is a major contributor to POGO.)