The Project on Government Oversight (POGO) last week released a study of the Securities and Exchange Commission’s revolving door.

The study is titled – Dangerous Liaisons: Revolving Door at SEC Creates Risks of Regulatory Capture.

The study found that from 2001 through 2010, 419 former SEC employees filed 1,949 disclosure statements indicating their intent to contact the SEC on behalf of an employer or client.

Former staffers are required to file the disclosures within two years of leaving the SEC.

POGO is making those disclosure statements available online in a searchable database.

The report found that those SEC staffers went on and tried to help corporations influence agency rulemaking, defended companies suspected of wrongdoing, helped companies soften the blow of enforcement actions, won exemptions from federal law for their clients and secured the agency’s blessing for companies to block shareholder proposals on issues such as executive pay.

POGO’s report found many examples of where the line between regulator and industry was blurred.

For example, several former SEC staffers were part of the successful lobbying effort last year to block tightening of regulations for money market funds.

There was the case of a former SEC manager who helped companies such as JPMorgan, UnitedHealth Group, Yahoo! and Alaska Air block shareholder proposals.

When he was at the SEC, he was the deputy director in the division that reviewed these proposals.

In another example, an enforcement branch chief in the SEC’s San Francisco office left the SEC in May 2010 to become in-house counsel at Wells Fargo & Co.

Less than two weeks later, she filed six disclosure statements indicating she would be representing Wells Fargo in connection with pending enforcement matters, including probes conducted by her former office.

“The revolving door between the SEC and the firms it oversees is so pervasive that it threatens the integrity of our regulatory system,” said Michael Smallberg, author of the POGO report. “The relentless flow of SEC officials to and from industry can enable powerhouse firms to shape the SEC’s culture and sway policies.”

“The revolving door is a very deep, tricky, and intractable problem throughout the federal government,” Smallberg told Corporate Crime Reporter in an interview last week.

“We don’t want to suggest that there is one simple solution that is going fix all of the potential problems.”

“We wanted to focus on the SEC, because we think it is a good case study on how the revolving door can affect the agency.”

“We do think there is an opportunity to bring more transparency to the process. For example, the SEC, to its credit, does require its former employees to disclose when they go through the revolving door and quickly reappear before the agency representing a client.”

“We think a simple measure would be to post those statements online at the outset to give a window into the kind of work the SEC does and its interactions with former employees.”

POGO filed Freedom of Information Act (FOIA) requests for all of these post-employment disclosure statements over a ten year period.”

“We found that over 400 former SEC employees have filed nearly 2,000 of these statements during a ten year period,” Smallberg said.

“The basic point we are making is that this revolving door at the very least seems to blur the line between the SEC and the world that it regulates.”

“We also looked at some specific anecdotal examples to show how the SEC is often interacting with former employees when it tries to take enforcement actions against companies, when it tries to regulate companies, when it tries to issue accounting rules. The SEC is often bumping up against people who used to work at the agency but are now representing industry. And in many cases, they are trying to weaken or water down what the SEC is doing.”

“We focus on an effort last year when the SEC was trying to tighten rules for money market funds. That effort ultimately failed. And we found that indeed, many alumni who had left the agency to represent the investment industry opposed these regulatory changes.”

“A tougher question we try to explore is — what is the larger effect on the SEC with so many people going to and from industry?”

“We think at the very least it can affect the culture and the mindset of people who work there. We think it causes people who work there to at least identify with industry representatives who used to work at the SEC.”

“And even when an SEC employee tries his hardest to be neutral or independent when evaluating an issue, if he is someone who used to work in industry, if he is planning on returning to industry after he worked at the SEC, if he is finding himself on the other side of the table from someone who used to be his boss or a colleague at the agency, we think it is going to be hard for him to evaluate this issue with total independence.”

“We worry that this revolving door can color the thinking of SEC employees in a way that might benefit the larger companies or industries that the SEC oversees.”

“I don’t think you are going to find many cases in which an SEC enforcement attorney knows that he wants to leave the agency, get a job at a defense law firm, and he then soft pedals a case in order to curry favor with the law firm,” Smallberg said.

“There may be individual cases where that happens. But my sense is that is not typically how the revolving door would affect the agency.”

“Our concern is the prevailing way they handle all sorts of enforcement actions, regardless of who is on the other side of the table.”

“Judge Jed Rakoff and others have raised questions about the SEC’s tendency to enter into settlements with defendants, in which the defendants do not admit any wrongdoing.”

“In many cases, senior executives at the companies are not charged.”

“And people who go through the revolving door often try to get those kind of settlements for their clients. And lawyers who worked in the industry and got those kind of settlements, come to the SEC and come to accept those settlements as a standard way of doing business.”

“But what is lost sometimes in those discussions is how those settlements do or do not serve the public interest, or how they might or might not deter other companies from committing similar misconduct in the future.”

“In a case like that, we would argue that if you are looking at the big picture of the steady movement of people to and from the agency — this may make the agency more accustomed to those settlements as a standard way of doing business, as a norm within the agency.”

“It may be harder for them to look at these types of settlements through the lens of someone like a defrauded investor or a shareholder or a consumer who may want to know more about the underlying facts in the case.”

[For the complete transcript of the Interview with Michael Smallberg, see 27 Corporate Crime Reporter 7(12), February 18, 2013, print edition only.]