SEC Inspector General Addresses Pornography Scandal on 'Your World'

This is a rush transcript from "Your World With Neil Cavuto," April 23, 2010. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST: Well, Ponzi schemer Bernie Madoff almost got away with it, and now we may know why. Because the folks at the SEC who were supposed to be watching for fraud were actually watching this.




CAVUTO: Yes, lots of them, like porn — why were so many of them watching porn?

According to a memo obtained by Fox, some senior staffers at the SEC spent more time looking at pornography than fighting crime, one guy in excess of eight hours a day, and he was a top attorney reportedly visiting websites with name like, YouPorn and Skankwire.


CAVUTO: Alright.

With us now, the guy who uncovered all of this, so to speak, the SEC Inspector General David Kotz.

David, I mean, this builds on earlier fears that this was just something limited to lower-ranking officials, but it went up the food chain. Do we know how many were actually involved?

DAVID KOTZ, INSPECTOR GENERAL, SECURITIES AND EXCHANGE COMMISSION: Yes, we found instances, as we said in our summary, of 33. I — I know of 31 particularly since I joined the SEC as the inspector general in the past two-and-a-half years, so 31 instances in the last two-and-a-half years.

CAVUTO: Alright.


KOTZ: And, yes, some of them were senior officials.

CAVUTO: I'm sorry, David. Through the last two-and-a-half years?

KOTZ: So, since about December of 2007, we have found — issued 31 reports. And some of them were senior officials.

CAVUTO: Now, that's what makes this somewhat different than prior reports, because people in a senior position, as we're looking at this, were the ones I would think were on top of this. But, in fact, they were on top of something very different.

Now, how prevalent was this?

KOTZ: Well, I mean, there were only those cases that we have found. So, I certainly wouldn't say that it was throughout the commission.

The concern we had was not so much with the number, which was only, you know, 31, 33 individuals, but with the severity of those instances and the egregiousness of those instances.

CAVUTO: Well, do we know whether the people involved were fired?


KOTZ: Action has been taken. In different cases, there were different things that happened. In some cases, people resigned after threat of termination. Some people were removed. Some people were suspended. Some people were reprimanded.

CAVUTO: Were any of the ones, the higher-ups who were involved this in — in key positions to decide issues like how to proceed against a Bernie Madoff or how to proceed against brokerage firms that might be getting scrutinized?

KOTZ: Well, we did not find any cases where anyone who was involved in either the examinations or investigations of Madoff or Allen Stanford also viewed pornography. Some of them were senior officials, enforcement officials who were involved in cases, cases that should have been brought, cases that should have been worked on, rather than having folks sit there and, as you said, spend several hours a day looking at pornography.

CAVUTO: We did get a statement from the SEC, David, to this effect.

"Each of the offending employees has been disciplined or is in a process," as you just said, by the way, "of being disciplined. Some have already been suspended or dismissed. We will not tolerate the transgressions of the very few who bring discredit to their thousands of hardworking colleagues."

So, is it under your belief that this — this kind of stuff has now stopped?

KOTZ: Well, I mean, I can tell you, certainly, that Chairman Schapiro has taken a very strong policy against this. And she has come down very hard against the individuals that we have identified as having violated these rules.


KOTZ: In the early days, there was some resistance among some senior-level people about how seriously to take this.

CAVUTO: Right.

KOTZ: But, certainly, Chairman Schapiro is taking it very seriously. And, yes, she's certainly taking action against the individuals that we're catching.


While I have got you here now, we're just getting word that House Oversight and Government Reform Committee ranking member, Darrell Issa, sent you a letter requesting you initiate an independent investigation regarding the SEC's decision to move forward with action against Goldman Sachs.

Have you received that? Any — do you want to comment on that?

KOTZ: Yes, I have received a letter. And, yes, we do intend to conduct an investigation, at the request of Congressman Issa.

CAVUTO: And the issue here is the timing of the release of that news, right?

KOTZ: Right.

CAVUTO: Is it — is it a problem if people were given a heads-up on the release of that information? The SEC disavows that, says that was not the case, but is there anything wrong if that were the case?

KOTZ: Well, I mean, we have to look at the facts and try to figure out what exactly happened.

We need to understand what led to the decision to announce or bring the case on that day...

CAVUTO: Right.

KOTZ: ... to see if there was any undo influence involved. And so we will look very carefully to investigate that and see what we determine.

CAVUTO: All right, David Kotz, SEC inspector general, always good seeing you. Thank you very much.

KOTZ: Thank you.

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