For example, as  part of supplemental regulation specific to SEC, former SEC employees  (within 2 years of separating from the agency) must submit a notice of  appearance, also referred to as an 8b letter, to request approval to  appear before SEC for purposes of representational activity. SEC’s Ethics  Office serves as the agency’s focal point in carrying out these  responsibilities. Among other tenets, these rules outline standards for an  accountant’s independence, integrity, and objectivity. These reports did not conclude that former SEC employees violated post- employment restrictions; although, the reports noted some related  concerns based on reviews of particular SEC investigations and the  actions of former employees, including the following:    The SEC IG’s report found that the SEC’s lack of documentation  resulted in an unclear record of what projects a former associate  director in the Division of Trading and Markets recused herself from  and on what projects she continued to work during employment  negotiations with a trading firm. While Employee Movement between SEC and the Private Sector Offers Potential Benefits to Each Side, It Also Raises Questions

		SEC Only Recently Has Begun to Collect Future Employer Information from Departing Employees

SEC only recently began asking separating employees—on an  agencywide basis—for future employer information. About 37 percent of these employees were included in  occupation categories that captured examiners, accountants, economists,  and attorneys—occupations relevant to SEC’s examination and  investigative efforts—who separated from SEC due to resignation,  retirement, or removal. Using sources such as letters from former employees requesting to  appear before SEC, Web-based search results, and interviews with those  knowledgeable about SEC, we found that former SEC employees  frequently obtained employment with financial entities or law or consulting  firms that represent them. Sixteen entities accounted for approximately 35 percent of the individuals  filing notices of appearance during this period. We also conducted searches for a nongeneralizable sample of 150  former employees who separated from SEC between October 2005 and  September 2010, and found that many of these employees later obtained  employment at law, consulting, or financial firms. SEC  officials also stated that former employees go to work for various firms,  such as financial or accounting firms, after separating from the agency. SEC Officials and Others Cited Both Benefits and Challenges of Movement between SEC and Regulated Entities or Firms That Represent Them

Collectively, SEC officials, academic researchers, citizen advocacy  groups, and representatives from financial firms and law firms with whom  we spoke said that there are a number of benefits and challenges of  employee movement between SEC and the private sector. SEC officials,  academic researchers, and representatives from financial firms and law  firms cited the following benefits:    Better regulatory understanding and compliance. Although SEC Has Multiple Controls Related to Conflicts of Interest, Documentation of Ethics Issues Varies

		SEC Provides Information to Employees on Post- Employment Requirements and Restrictions but Has Not Consistently Documented Ethics Advice

SEC has a number of controls for managing post-employment and  conflict-of-interest issues. The SEC Ethics Office currently provides  information about ethics rules and regulations (as well as conflict-of- interest and post-employment restrictions) to employees through the SEC  intranet and by e-mail. According to SEC managers and employees with whom we spoke,  systems for documenting key decisions, multiple levels of review, and  controls for staff involvement and communication reduce the likelihood  that any individual employee could exert undue influence on SEC  decisions related to examinations and investigations. According to the SEC Ethics  Counsel, ethics officials frequently advise current and former employees  about issues related to their involvement in SEC matters. This information then  can be used as part of the exit interview to advise departing staff about  potential conflicts of interest related to their SEC experience they may  encounter in their new positions. 2). While SEC’s controls are similar to many of those of other agencies, there  are some differences. Better documentation of  ethics advice could improve SEC’s ability to demonstrate that its officials  are providing appropriate advice to current and former employees, and  that the agency is taking steps to minimize the potential for post- employment violations or conflicts of interest. Recommendation for Executive Action

To promote transparency and help strengthen SEC’s procedures for  documenting events related to potential current and post-employment  issues associated with the movement of employees between SEC and  other employers, we recommend that the SEC Chairman establish  standards for documentation of ethics advice. To describe internal controls SEC has in place to manage potential  conflicts of interest associated with the movement of employees to the  private sector, we obtained documentation on controls related to  managing potential post-employment and conflict-of-interest issues. We selected SEC divisions and offices to review based on our  analysis of SEC separation data.
Why GAO Did This Study

Many Securities and Exchange Commission (SEC) employees leave the SEC each year, and some of these former employees go to work for firms regulated by SEC or the law or consulting firms that represent them. This practice raises questions about the potential impact on SEC's ability to effectively carry out its mission, including the potential for undue influence by former SEC employees on SEC matters or cases. The Dodd-Frank Wall Street Reform and Consumer Protection Act required GAO to examine the movement of former SEC employees to regulated firms and the associated concerns. Among other things, this report examines (1) the extent to which employees leave SEC to work for or represent regulated entities and the potential issues associated with such movements and (2) internal controls SEC has in place to manage potential conflicts of interest and how these controls compare across other agencies. To address these objectives, GAO analyzed data on former SEC employees, reviewed SEC's and other agencies' internal controls, and interviewed current and former SEC officials.

What GAO Found

Because SEC historically has not collected future employer information from separating employees on an agencywide basis, complete information on where former SEC officials obtained employment is not currently available. Based on available SEC attrition data, about 37 percent of the more than 2,000 employees who separated from SEC between October 2005 and September 2010 were in occupation categories that included examiners, accountants, economists, or attorneys--occupations particularly relevant to SEC examinations and investigations. GAO analyzed notice of appearance requests--which are required when former SEC employees wish to appear before SEC, within 2 years of their separation, for purposes of representing their firm or client--submitted between October 2005 and October 2010. Sixteen entities, consisting primarily of law and consulting firms, accounted for approximately 35 percent of the individuals filing these notices. GAO also selected a nongeneralizable sample of 150 former employees from occupation categories relevant to SEC's examination and investigative efforts and searched publicly available sources for information about their post-SEC employment. These individuals frequently obtained positions with financial, consulting, or law firms that represent firms regulated by SEC. According to SEC officials, representatives from law and financial firms, and academic researchers with whom GAO spoke, the potential benefits of employees moving between SEC and the private sector include bolstering SEC's ability to attract experts to help fulfill its mission and increasing understanding of SEC rules and regulations among industry participants. Academic researchers and citizen advocacy groups described potential challenges of such movements, such as the appearance of potential conflicts of interest when former SEC staff work for or represent regulated firms. SEC has a number of controls for managing post-employment and conflict-of-interest issues, and many of SEC's controls are similar to those of other agencies. For example, the SEC Ethics Office provides information to employees about ethics rules and regulations as well as agency-specific conflict-of-interest and post-employment restrictions. Also, some SEC divisions and offices take steps through staffing and work processes to manage potential conflicts of interest and have multiple levels of review and systems for documenting key decisions, such as closing SEC investigations. As previously recommended by GAO, SEC also recently began collecting future employer information from separating employees. This information can be used as part of SEC's mandatory exit interviews to advise departing staff about potential conflicts of interest they might encounter in their new positions related to their SEC experience. While SEC ethics officials routinely advise current and former employees on post-employment and conflict-of-interest issues, SEC has not consistently documented this advice. The agency's lack of documentation standards could limit SEC's and employees' ability to demonstrate that appropriate consultation occurred and could contribute to questions about the movement of employees between SEC and the private sector.

What GAO Recommends

GAO recommends that SEC establish standards for documentation of ethics advice on current and post-employment issues associated with the movement of employees between SEC and other employers. SEC generally agreed with GAO's recommendation and stated that it has begun drafting standards.