In recent years, the Securities and Exchange Commission has been known more for its fuck-ups than successes. The regulator took a pass on heeding the warning signals by Bernie Madoff himself that he was running a Ponzi scheme, it chose to go after David Einhorn rather than Allied Capital when the hedge fund manager suggested all was not right at the company and right now, as we type, the regulator is presumably fucking up in ways we cannot imagine but will hear about two years hence. Separately the Commission happens to employ a not insignificant number of people who like to look at porn all day, every day, in lieu of working, which perhaps could explain some of the slip-ups, though it's a very chicken or egg situation.

In past times, none of this (the failures and the 24/7 surfing of www.ladyboyjuice.com, www.anal-sins.com, www.fuck-my-wife.com, among others) proposed a problem. Business as usual. Then Inspector General David Kotz had to come in and start asking people, "Why didn't you think to follow up when Madoff said the whole thing was a scam?" and "Why, on Wednesday, August 20th did you make approximately 385 attempts to access a website called www.ladyboyx.com from your work computer?" And now, it's war.

The U.S. Securities and Exchange Commission’s in-house cop has castigated the agency for missing the Bernard Madoff fraud, spotlighted employees who viewed online pornography, and called for a criminal probe into the ethics of the SEC’s former top lawyer. His blunt reports have won Inspector General H. David Kotz admiration on Capitol Hill, where lawmakers summon him to testify about his efforts to improve the way the agency does business, and he is praised as a tough investigator who has been zealous in getting to the bottom of the SEC’s lapses in the runup to the credit crisis.

Inside the SEC, it’s not hard to imagine how he’s been received. While inspectors general are rarely beloved, a backlash against Kotz among staff and managers has grown in intensity and spread to the legal community outside the agency. Critics led by former SEC Chairman Harvey L. Pitt say Kotz is undermining the market regulator’s effectiveness. “For those who may be unaware of what is going on at the SEC, there is a reign of terror in effect,” Pitt wrote to about 90 securities lawyers in a September e-mail obtained by Bloomberg News. “People are afraid to write anything down, make decisions, or even take notes of telephone conversations, because the current IG monitors everyone’s e-mails, including the chairman’s, and starts investigations at the drop of a hat,” Pitt wrote. In an interview, Pitt—a lawyer who has represented several people involved in Kotz’s investigations—said he is speaking out because Kotz “has to be held accountable.” Kotz’s critics complain that some of his reports lacked evidence of wrongdoing and unfairly damaged the reputations of those he accused. Kotz, 45, disputed his detractors in a written statement, saying his work has had “an extremely positive impact” on the SEC. “Whenever an inspector general is doing his or her job properly, there is naturally some level of apprehension on the part of agency employees of a possible investigation,” Kotz said. “However, we have made efforts to be very thorough, detailed, and fair in our reports.” In interviews, almost three dozen current and former SEC staff members—including managers, senior appointees, and nonsupervisors—raised concerns similar to Pitt’s.

And if Kotz thought SEC staffers were going to take this laying down, he thought wrong. Rather, they'll take their business elsewhere.

Speaking on condition of anonymity for fear of reprisals, they said their wariness of Kotz’s probes has caused them and others to change work habits in ways that have unintended consequences. Kotz and his team have reviewed millions of internal messages in some investigations. That has prompted many in the agency to rely largely on private e-mail accounts and cell phones rather than their government-issued devices, making staff conduct harder to monitor.

If they have to download that video of a man fellating a horse one pixel at a time, they will. You have no idea who you're dealing with, DK.

Fear And Loathing At The SEC [BusinessWeek]