SEC Dismisses Cases Due to Widespread Improper Staff Access to Restricted Records

The Securities and Exchange Commission (SEC) has dismissed proceedings in 42 enforcement cases after discovering that improper staff access to restricted records occurred on a larger scale than initially reported.

The agency acknowledged the issue in a statement released on Friday, which disclosed the findings of an extensive investigation into the improper access. The initial disclosure in April 2022 had highlighted two cases where enforcement staff accessed certain restricted documents, but the new statement reveals that 28 matters were affected.

The SEC conducted a thorough review, with the assistance of consultant Berkeley Research Group, and found no evidence to suggest that the improper access had influenced the actions of investigators in the respective cases. However, the agency decided to dismiss 42 pending cases in order to conserve resources.

These 42 cases involved individuals and companies that were being prosecuted in the agency's in-house courts. Among them was the SEC's case against Jeffrey Wada and David Middendorf, both linked to the well-known KPMG cheating scandal.

The improper access issue at the SEC stemmed from databases that were not configured to restrict staff from the Enforcement Division from accessing memoranda drafted by the adjudication group in the Office of the General Counsel. The SEC confirmed that it has now implemented enhanced controls to prevent enforcement staff from accessing such memoranda in the future.

"We deeply regret that the agency's internal systems lacked sufficient safeguards surrounding access to adjudication memoranda, and we are continuing our work to ensure that, going forward, work product from the adjudication staff is appropriately safeguarded," stated the SEC. "We take this lapse in controls very seriously and are committed to both informing the public about the scope of this issue and preventing any similar lapses in the future."

By fLEXI tEAM