SEC Watchdog Out Two Months After Criticizing Its Rulemaking (2)

The SEC’s Acting Inspector General has has left the office, less than two months after releasing a report sharply critical of Chairman Gary Gensler’s approach to rulemaking, saying it was hurried and potentially detrimental to the agency’s workers and the overall health of the organization.

The report said that several senior managers didn’t even know about key changes in department policy until after they were implemented in December, 2021.

An SEC spokesperson said the departure of Acting Inspector General Nicholas Padilla, who took over earlier this year, is not related to his office’s activities.

“Nick was employed as a Federal Law Enforcement Officer and left service in November. His departure had absolutely nothing to do with any of the substantive work of the Office of the Inspector General,” reads a statement released by the agency.

Further, government-wide staffing regulations limit the amount of time individuals can serve in a higher-graded position without competition to no more than 120 days, according to the statement.

Helen M. Albert is now listed as the acting IG. She had served as Deputy Inspector General for Operations and Management since 2019, and before that was acting inspector general at HUD.

Padilla has more than 30 years of law enforcement investigative experience, including stints at Housing and Urban Development and in the army, where he served for a time as Special Agent in Charge “of classified investigations within the U.S. Army Special Operations Command,” according to his SEC biography page.

An October report titled, “The Inspector General’s Statement on the SEC’s Management and Performance Challenges,” said Gensler’s focus on swiftly instituting new rules depleted resources from other departments. The report also said the agency is losing workers at its highest rate in a decade and that Gensler had recruited inexperienced staff from other agencies to quickly push new rules.

"(M)anagers reported relying on detailees, in some cases with little or no experience in rulemaking,” the report said. Some managers reported that “the more aggressive agenda, particularly as it relates to high-profile rules that significantly impact external stakeholders, potentially limits the time available for staff research and analysis, and increases litigation risk.”

The report said that Gensler and the SEC had introduced 26 new rules in the first months of this year, more than the previous two years combined, and that many were on a fast track that limited the time for public comment.

Padilla raised the same issue in a September 29 letter directly to Gensler but got no response, the report said.

“Generally, we concluded that changes to the SEC’s rulemaking process, particularly without notice to the offices likely to be impacted, may unintentionally limit the ability of those offices to carry out their functions, and could hinder effective collaboration and information sharing across the agency,” Padilla wrote in the Sept. 29 letter.

Padilla’s departure comes as the inspector general’s office is conducting an audit of the SEC whistleblower program. A Bloomberg Law investigation revealed that the program, which has awarded more than $1.3 billion to tipsters since it began in 2011, operates in secrecy far beyond its legislative mandate to protect whistleblowers’ identities. Whistleblowers and their attorneys say the agency keeps them in the dark as cases drag on for up to 10 years, and the agency won’t disclose names of companies involved in fraud.

More than $430 million has gone to clients of law firms employing three former high-ranking SEC officials, including one who helped create the program and another who headed the whistleblower’s office for five years. Less than 1% of the more than 64,000 whistleblower tips have resulted in an award.

Earlier this year the Inspector General’s office said in a report to Congress that it would conclude its audit by the end of September. No report has been issued, and the SEC has refused to comment about the delay and has not responded to repeated Freedom of Information Act requests for information related to its release.