Spyware and Guns at the SEC

Chidem Kurdas

Behind the icy glass façade of the US Securities and Exchange Commission is allegedly a seething den full of schemes, corruption, sexual affairs and savage retribution against whistle blowing. The claims come from a lawsuit filed by David Weber, former assistant inspector general for investigations at the SEC watchdog, Office of the Inspector General.

He is suing the Commission and its chairperson Mary Schapiro personally for at least $20 million, possibly several times that. He says SEC officers retaliated by destroying his career after he warned them that he would disclose a breach of computer security, caused by SEC staff, at stock exchanges.

The complaint describes an amazing array of debacles. Sexual misconduct by long-time SEC inspector general David Kotz – now in the private sector – is the least of it. But probably the gravest charge is that SEC personnel allowed hackers access to key information about the computer network infrastructure of the NYSE, NASDAQ and other exchanges.

The exchanges provided the SEC with this information in compliance with regulatory requirements.

SEC officers took with them unencrypted laptops containing the information when they attended an IT security conference at Las Vegas called the “Black Hat” event,  known to attract numerous hackers. Later their computers were found to have spyware or malware installed. “This suggests that SEC information or stock exchange information was potentially accessed by unknown individuals,” according to the complaint.

Mr. Weber was investigating the matter. “These breaches were caused by either the intentional or grossly negligent mishandling of sensitive computer equipment and data by SEC employees and management officials, all while the SEC failed to warn each of the affected exchanges of the breach,” he alleges.

He says this may be intentional because it  is difficult “to imagine that the SEC’s top computer security experts would innocently carry unencrypted laptops containing the architecture and trading engines of the top stock exchanges to a convention of hackers, travel overseas with the computers, have spyware or malware on their computers, and later mislead investigators as to precautions taken with their government equipment.”

Apparently this May he told the SEC leadership, including Schapiro, that they should inform the exchanges and Congress about the possible breach and if they did not he would do so as required of the Office of the Inspector General.

The very next day, he was met by armed guards when he tried to enter the SEC building and told to stay away. Stories appeared in the media that he was a dangerous man and packed a gun—he did so legally; this is not unusual for investigators.

According to the complaint, SEC officials made “malicious and defamatory statements against him in the news media, leaking personal information about him in violation of the Privacy Act.” These leaks were used against him in a custody battle for his children. The SEC fired him at the end of October.

Are his complaints true? What can be said for certain is that the SEC has an established pattern of retaliating against staffers who make the top brass look bad. The most egregious of these retaliations was against Julie Preuitt, the extremely capable SEC examiner who discovered the Ponzi scheme of Allen Stanford—see Political Sticky Wicket: The Untouchable Ponzi Scheme of Allen Stanford

Higher level bureaucrats chose not to seriously pursue Stanford for almost 12 years while Ms. Preuitt kept pushing for an investigation that would subpoena him and his associates. Eventually she was punished by being removed from her position, sidelined and ostracized. Stanford was finally nabbed in 2009.

So it is plausible enough that Weber, posing a greater threat to the interests of higher-ups in the bureaucracy, would be meted even worse treatment.

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3 Responses to “Spyware and Guns at the SEC”

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