Financiers Used “Hotline” to SEC Examiners

“One unrelated final note I want to mention, we’ve implemented what we call the ‘Exam Hotline.’ The Exam Hotline will be dedicated to receiving calls from members of the regulated community who have a complaint or a concern about an SEC examination,” Richards said to the Investment Adviser Compliance Best Practices Summit, adding “if a member of the regulated community has a complaint or a concern about an examination, they should know where to call for immediate attention.”

Lynch said that the existence of this “hotline” sent a signal to career employees at the SEC. “And I know that these employees took that message as meaning ‘we’ve gotta back off a little bit’ and that senior management at the SEC was actually captured by the industry and that it wasn’t doing the intense investigating that we would expect from them.”

SEC whistleblower Mark J. Novitsky, who tracks the actions of the financial regulatory system, tipped Truthout off to Lynch’s comments.

A spokesman for the SEC declined to comment for this report.

However, a publicly available brochure provided to the financial companies that are overseen by the SEC contains details about the hotline:

You may also communicate comments, complaints, or concerns through the Examination Hotline, (202) 551-EXAM. The Examination Hotline offers you a choice to speak with either a senior-level attorney in the Office of Compliance Inspections and Examinations in Washington, DC, or a staff member in the SEC’s Office of Inspector General. The Office of Inspector General is an independent office within the SEC that conducts audits of Commission programs and investigates allegations of employee misconduct.

Purpose of “Examinations Hotline” Sharply Contested

According to Lynch’s statement, unnamed former and current SEC officials see a nefarious purpose, implying that the hotline is a direct line for powerful Wall Street business people to apply pressure to SEC officials and back them off of investigations.

“It just struck me that there was a hotline to stop an investigation or to slow it down at the SEC but there wasn’t one to speed it up or initiate it. It just seemed counter-intuitive to me given the mission of the agency itself,” Lynch said.

Lynch did not provide any example of investigations that had been halted using the hotline. Through his staff, Lynch declined to comment for this report.

SEC documents present the hotline as a means for expanded communication between top SEC officials and the businesses that are undergoing inspection by SEC examiners.

The SEC brochure also raises a central issue – anonymity.

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