<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By Susan Antilla</p> <p>The impending departure of  H. David Kotz, inspector general of the U.S. Securities and Exchange Commission, looks bad for Kotz. But his resignation, announced Tuesday, looks even worse for the SEC.</p> <p>Kotz wound up with a bruised image after <a href="http://www.bloomberg.com/news/2011-12-14/sec-watchdog-bought-radio-host-s-eagles-tickets-after-interview.html">Bloomberg News reported</a> that he’d purchased three hard-to-get football tickets from a Pennsylvania investment adviser who posted an interview with Kotz on his Web site. There’s a definite “What was he thinking?” aspect to this episode, and it’s a blunt reminder that regulators should always separate their business from their personal lives.</p> <p>Yet Kotz's quitting raises an even larger question for the SEC itself. Kotz has, to put it mildly, detailed for all the public to see that the SEC had become a paragon of dysfunction. During his four-year tenure, Kotz and his staff issued 52 <a href="http://www.sec-oig.gov/AuditsInspections/Reports.html">audit reports</a> and 140 <a href="http://www.sec-oig.gov/OOI/IR.html">investigative reports</a>, frequently detailing the agency’s fumbling.  His reports, which covered everything from the SEC’s boneheadedness (and I’m being kind here) in missing the Bernard Madoff scandal to the bizarre Web-surfing practices (read: cruising porn sites) of some staff members, could not have been more embarrassing.</p> <p>He was a sitting duck for those humiliated by his work, and for his target’s friends.</p> <p>It was pretty clear to me in September 2011 that Kotz’s days were numbered. Kotz had issued a report saying that, while David M. Becker was SEC general counsel, he had pushed a legal concept for compensating victims of the Madoff fraud that could have benefited Becker financially. Congress was holding hearings into the matter, and several dozen Becker supporters leapt into action. During his testimony, Becker read from his February 2011 farewell speech to SEC staffers that described employees “weeping with fear” over Kotz’s investigations. Former SEC chairman Harvey Pitt testified that Kotz used an “unprincipled approach” in his work, adding that Kotz didn’t follow the law and didn’t know what he was talking about. (We won’t get into details of Pitt’s own stormy 15-month stint as SEC chief, which ended with his 2002 resignation letter to President George W. Bush noting the “turmoil” surrounding his chairmanship.)</p> <p>On Sept. 22, the day after Becker’s “weeping with fear” testimony, 52 securities lawyers, academics, and sitting securities regulators wrote to congressional committee members to defend Becker’s high “moral and ethical fiber.” Richard G. Ketchum, CEO of the self-regulatory agency Finra, signed the letter. So did Linda D. Fienberg, president of Finra’s dispute resolution operation, though she described herself only as “Former Executive Assistant to SEC Chairman and Associate General Counsel.” Pitt signed, too.</p> <p>Kotz succeeded Walter Stachnik, who became the agency’s first inspector general in 1989. Kotz got the job after a 108-page Senate report issued in August 2007 said Stachnik’s office had “failed in its mission” to investigate allegations that hedge fund Pequot Capital had engaged in insider trading. Kotz was supposed to be the tough investigator who would restore confidence in the tainted inspector general’s office.Don’t get your hopes up that his replacement will have a comparably intrepid approach.</p> <p>There’s a moral in here somewhere. Maybe something like this: If you want to tell it like it is with the financial industry and its regulators, be sure to keep an updated version of your resume handy.</p> <p>(Susan Antilla is a columnist for Bloomberg View.)</p> <p> </p> </body> </html>