Exposing Corruption and Preventing Abuse of Power

SEC Finally Finalizes a Revolving Door Rule

After backtracking from a promise to tighten restrictions on its revolving door, the Securities and Exchange Commission (SEC) is again moving forward with plans to close a loophole in federal ethics rules and require senior employees who leave the agency to stay on the sidelines for a time before returning to lobby their former colleagues.

When we last reported on the subject, a federal ethics office had issued a new rule to slow the revolving door between the SEC and the world it regulates—and then, at the SEC’s request, after the new rule had been published as “final,” took the unusual step of withdrawing it.

Now, the Office of Government Ethics (OGE) has reissued the rule, again declaring it “final.”

But the new final rule won’t take effect until April 2014, giving some SEC regulators an extra three months to pass through the revolving door and avoid the new restrictions.

Under the new rule, employees who remain at the SEC past the April cutoff and serve in “senior” positions will have to sit on the sidelines for at least one year before they can contact the agency on behalf of a new employer or client. A one-year “cooling off” period is par for the course for senior alumni at other federal agencies, but the SEC had managed to obtain exemptions for alumni who served as supervisory accountants, attorneys, economists, and other “middle managers,” arguing that the restriction made it hard to recruit talented industry professionals.

The Project On Government Oversight highlighted the ethics loophole in a report last year and recommended longer timeout periods for employees who circulate between the SEC and Wall Street, blurring the lines between the two.

The SEC’s Inspector General criticized the loophole in a January 2011 report, arguing that the blanket exemptions opened the door to “potential abuse.” Two and a half years later, the SEC announced it would be closing the loophole. A rule published as “final” in October 2013 said the agency was “no longer experiencing undue hardship in obtaining qualified personnel to fill the covered positions.” Furthermore, the notice said, “discontinuing the exemptions will create parity between SEC employees…and employees in similar positions at other financial regulatory agencies.”

The final rule was supposed to take effect in January 2014. But it was withdrawn just before Thanksgiving. The federal ethics office said the SEC had asked it to withdraw the rule so the agency, which oversees Wall Street and much of Corporate America, could have more time to “effectively educate affected employees.” The agency had discovered that some staffers were not notified of the rule change, SEC spokesman John Nester told POGO at the time. At least “600 staff members were potentially affected” by the change, he said.

Image from Flickr user John Kannenberg.