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Oig-505 SEC Failure to Investigate Allegations of Financial Fraud

Oig-505 SEC Failure to Investigate Allegations of Financial Fraud

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The OIG investigation revealed that from February 2005 through November 2007, the SEC received more than twenty complaints from Mclaughlin, a registered representative, raising serious allegations of financial fraud about Metromedia.
The OIG investigation revealed that from February 2005 through November 2007, the SEC received more than twenty complaints from Mclaughlin, a registered representative, raising serious allegations of financial fraud about Metromedia.

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Published by: Investor Protection on Feb 01, 2011
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11/14/2011

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This document is subject to the provisions
of
the. Privacy Act
of
1974,
and
may require redactionbefore disclosure to third parties.
No
redaction has been performed
by
the Office
of
InspectorGeneral. Recipients
orthis
report should not disseminate
or
copy it without the Inspector General'sapproval.
REPORT OF INVESTIGATION
UNITED STATES SECURITIES AND EXCHANGE COMMISSIONOFFICE OF INSPECTOR GENERALCase
No.
OIG-505Failure
to
Timely Investigate Allegations
of
Financial
Fraud
February 26, 2010
 
This document is subject to the provisions
of
the Privacy Act
of
1974, and
may
require redactionbefore disclosure to third parties.
No
redaction has been performed
by
the Office
of
InspectorGeneral. Recipients of this report should not disseminate
or
copy it without the Inspector General'sapproval.
Report
of
InvestigationFailure to Timely Investigate Allegations
of
Financial
Fraud
Case
No.
505
Table
of
Contents
Introduction
and
Summary 1Scope of
the
Investigation..........•...................................................................................6
Relevant Commission and Government Regulations
and
Rules 8
Results
of
the Investigation 9
1.
McLaughlin's First Two Complaints to the SEC in February 2005Were Not Reviewed or Analyzed 9
A.
SEC's Handling
of
McLaughlin Complaint No. 1
 
9
B.
SEC's Handling
of
McLaughlin Complaint No. 2 12
II.
McLaughlin's Third, Fourth, and Fifth Complaints to the SEC in theSummer and Fall 2005 Were Not Reviewed or Analyzed 13
A.
SEC's Handling
of
McLaughlin Complaint No. 3 13
B.
SEC's Handling
of
McLaughlin Complaint No. 4 14
C.
SEC's
Handling
of
McLaughlin Complaint No. 5 15
D.
Mclaughlin Complaint Nos. 4 and 5 Sat for Two Years in theEnforcement Accounting Group Without Review
15
E.
Enforcement Accounting Group Review Was Intended
to
Swiftly Determine Whether an Investigation Was Warranted 17
F.
Failure
of
Enforcement Accounting Group to Follow WrittenProcedures May Have Contributed to McLaughlin's ComplaintsNot Being Acted Upon ; 18
 
This document is subject to the provisions
of
the Privacy Act
of
1974, and may require redactionbefore disclosure
to
third parties.
No
redaction has been performed by the Office
of
Inspector
General
Recipients
of
this report should not disseminate
or
copy it without the Inspector General's
approval
III. McLaughlin's Sixth Through Seventeenth Complaints
to
the SEC in2006 and 2007 Were Not Reviewed or Analyzed
19
A.
Failure
to
Follow Proper Procedures
to
Close the 2002Metromedia Investigation Contributed
to
McLaughlin'sComplaints Sitting in Enforcement Without Action 20
1.
Background
of
the 2002 Investigation
of
Potential FCPAViolations at Metromedia 20
2.
Steps Necessary
to
Close an Enforcement Investigation
21
3.
Closing Documentation CouldTake 1-2 Years
to
Process 234. Official Closing Documentation Was Not Prepared
23
5.
It
Was Not Unusual for Inactive EnforcementInvestigations to Be Left Open for More Than a Year 26
B.
SEC's Handling
of
Mclaughlin
Complaint
No.
6 27
C.
SEC Form Letter Gave McLaughlin a Misimpression
of
Whatthe SEC Was Doing With Mclaughlin Complaint
No.
6 ;.29D. SEC's Handling
of
McLaughlin Complaint Nos. 7,
8,
and 9
.31
E.
Failure
to
Update NRSI Database Affected Ability
to
EffectivelyInvestigate Complaints
'"
33
F.
SEC's Handling
of
McLaughlin Complaint Nos. 10-16 33IV. Enforcement Finally Began
to
Examine McLaughlin's ComplaintsAfter He Contacted Congress and the Chairman's Office, But theInvestigation Began Too Late for the SEC
to
Stop the Sale
of
Metromedia's Assets ; 34
A.
Head Enforcement Personnel Learned that MclaughlinComplaints Had Never Been Reviewed, Analyzed, orInvestigated 35
B.
The 2002 Metromedia FCPA Investigation Had
Not
BeenProperly Closed 36
C.
Assistant Director Claimed Not
to
Have Received McLaughlin'sComplaints 37
D.
The Decision Was made
to
Leave Open the Unrelated 2002Metromedia Investigation .40
11

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