Rolling Stone’s Matt Taibbi just published one of his bombshell articles, this one delving into the sex scandal at the U.S. Securities and Exchange Commission, the federal agency responsible for regulating the securities industry. David Weber, a former chief inspector general for the SEC, is suing his former employer and claims he was the victim of retaliation after blowing the whistle on the hotbed of sex and corruption that ran rampant within the agency. Here’s what you need to know.
1. David Weber Filed a 77-page Complaint
2. The SEC Blew the Bernie Madoff Investigation
Weber claims that while the SEC Inspector General’s office was investigating the SEC’s failure to uncover Bernie Madoff’s scheme and the similar, but lesser-known, Stanford Ponzi scheme, former Inspector General David Kotz and his successor, Noelle Maloney, were sleeping together, possibly compromising the investigation.
3. David Kotz Was Banging Everyone
Weber claims that in addition to his affair with Maloney, Kotz was sleeping with a lawyer representing some of the Stanford victims, a Dr. Gaytri Kachroo. Then acting Inspector General Maloney refused to meet with Kachroo, and when Weber asked why, Maloney revealed that Kotz had an affair with her and she had received special treatment, after stating that she would deny the conversation if Weber ever repeated it. Kotz resigned in January after his ethics were questioned when he got Eagles tickets from a financial adviser, and an investigation by the U.S. Postal Service Inspector General David Williams found that Kotz broke the rules by overseeing investigations involving people he had “personal relationships” with.
4. They Fired Weber
In May, after Weber went to Congress and the SEC Commissioners to report Kotz’s and Maloney’s misconduct, he was put on leave after Maloney falsely accused him of wanting to bring a gun into the office, and was subsequently ridiculed in the media. Weber then “began to uncover the depth of dysfunction at the SEC,” according to his lawyer, Cary Hansel, and was fired on October 31.
5. Security Violations Are Afoot
In another section of the complaint, security “breaches may have compromised extremely sensitive information about the computer infrastructure of every major stock exchange, including the New York Stock Exchange and the NASDAQ Stock Exchange.” SEC investigators allegedly loaded highly-protected system data onto unencrypted laptops, then hopped a plane to Vegas for a “Black Hat” convention, a holy land for internet security specialists and hackers. Oh, that’s good.
6. Whistleblowers Get Hired and Fired
Weber’s suit alleges that the SEC security chief, William Fagan, watched the video feed from security cameras in order to spot potential whistleblowers. There are also claims that Fagan only hired people with whom he had personal connections, and this is supposedly confirmed by a whistle-blower who was also illegally hired by Fagan.
7. The SEC Doesn’t Take No Sh*t From Nobody
If Weber’s allegations turns out to be true, they follow a long line of whistle-blower intimidation tactics. For example, Gary Aguirre, a former lawyer for the SEC, was supposedly fired from the agency for investigating a cover-up by the SEC of insider trading at Pequot Capital, a powerful Wall Street hedge fund. Aguirre and the SEC have battled for years over his firing, and Aguirre claims that after he criticized the agency to Forbes, the SEC retaliated by putting a stop to his $2.1 million settlement.
8. Weber is Seeking $20 Million
The lawsuit is based on Weber’s belief that he was wrongfully terminated and wants $20 million in damages. And for some reason he wants his job back, too.
9. The SEC Is Keeping Quiet
John Nestor, an SEC spokesman, declined to comment, but another SEC representative said in an email response that the agency is looking forward to filing a response to Weber in court.
10. The Irony Abounds
The craziest part is that this lawsuit is filed against the SEC Inspector General’s Office, which was created as a way to monitor the actions of SEC employees. Weber got fired for doing his whistle-blowing job!