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SEC Employee Misled Fellow Ponzi Investors: Report

A Securities and Exchange Commission employee at the agency's Washington headquarters may have compromised the investigation of a multi-million dollar Ponzi scheme last year by claiming to investors — of which he was one — that the company was legitimate. This, according to a report by the agency's Inspector General, H. David Kotz, who has recommended the employee face disciplinary action including possible dismissal.

The U.S. Securities and Exchange Commission seal hangs on the facade of its building in Washington, DC.
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The U.S. Securities and Exchange Commission seal hangs on the facade of its building in Washington, DC.

The investigation was disclosed in Kotz's semi-annual report to Congress, issued today.

While the report does not name the employee or the company involved, the dates coincide with the SEC's investigation of Imperia Invest IBC, charged last year with running a $7 million scam targeting deaf investors.

Kotz's report says the employee repeatedly told investors that the company was legitimate "and that these investors would be receiving considerable sums of money for their investments."

The SEC won a temporary asset freeze against Imperia in October, 2010, and won a default judgment on February 14 on charges the company defrauded some 14,000 investors in a scam involving the sale of life insurance settlements.

Kotz found that around the time the SEC filed its case, the employee — who was also an investor — began sharing "nonpublic, false and misleading information" with his fellow investors.

"As a result," Kotz wrote, "his conduct not only confused certain investors and gave them a false sense of hope, but it also had the potential to adversely affect an ongoing enforcement investigation."

The report also recommends that fellow employees in the office, which is not identified, receive training on the proper handling of nonpublic information.