As widely reported last week, Brenda Murray, the Initiating Official tasked with reviewing and acting on the disciplinary recommendations of the SEC's Inspector General in two high-profile matters, rejected the IG's calls that discipline be imposed on several senior Enforcement officials. In separate reports dated November 7, 2008, Murray found that the IG's Reports of Investigation did not support his conclusions in the Pequot/Aguirre matter or the W Holding Co./Bear Stearns matter, and that there was no basis in either case for following the IG's recommendation as to disciplinary or performance-based action.

This flat-out rejection of the IG's recommendations in both matters immediately drew a range of public responses. SEC Inspector General H. David Kotz, whose office conducted the investigations, issued a statement that his office was "surprised and disappointed by the administrative judge's decisions.... We believe her findings were flawed and not supported by the evidence. We also have serious concerns about the process utilized in arriving at these decisions. We stand by our comprehensive and thorough reports 100 percent." Mr. Kotz declined to elaborate on his statement above for this article. U.S. Senator Charles Grassley, the ranking minority member of the Senate Finance Committee who helped initiate a re-investigation of the Aguirre matter, stated that "[i]t looks like the lawyers for the wrongdoers wrote the decisions."

Privately, people at the SEC with knowledge of the matter go even further, stating that they are "stunned" by Murray's decisions and the process that she used. An SEC official told me that Murray did not follow the standard procedure used by Initiating Officials in disciplinary matters, which is to examine only the record laid out in the IG's report itself and decide based on that record whether disciplinary action is appropriate. If discipline is appropriate, the standard procedure is for the Initiating Official to draft a recommendation as to the type of discipline and then (and only then) seek comments and input from the subjects of the potential discipline.

To the contrary, for the two decisions she issued last week, Murray is said to have used a process that the SEC official with whom I spoke stated he had never seen in his many years of experience with a large number of cases. According to this official, Murray went outside the report, re-opened the record, and re-examined the facts by soliciting new statements from the subjects of the disciplinary recommendations. The official stated that it appeared that Murray made her decision that discipline was not appropriate based almost exclusively on the one-sided information she received from counsel for the various subjects. Notably, this information was not subject to any cross-examination or any follow-up by the IG's office or other parties involved, and additionally was not provided under oath. The official stated that in his experience, such re-opening of the record is simply never done.