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task of evaluating the effectiveness of the agency's rules, and given the power to amend or abrogate those rules if it finds them non-responsive to the Congressional intent.
Alternatively, the bills could bar contacts by former staff persons, but could also provide for a waiver of such a bar in appropriate circumstances, and subject to appropriate checks. Thus, the legislation could provide for an automatic bar, but allow the affected agency, after full disclosure of the potential conflict, to waive the disqualification under certain circumstances. We assume that this decision would be made under public scrutiny, and would be subject to independent review by the proposed Office of Government Ethics.
At a minimum, we believe that serious consideration should be given to narrowing the unreasonably broad scope of the absolute one-year bar provision as proposed in the draft bills. Thus, for example. a sharp distinction should be drawn, in our view, between practicing before an agency, and practicing under the aegis of an impartial tribunal. In this regard, the two bills before your Committee seem not to differentiate between the two situations. If a former government employee were involved in wholly private litigation, for example, and his former agency decided to participate in the action as an amicus curiae or intervenor, under the terms of two bills, the former government employee might effectively be precluded from continuing the litigation on behalf of his client, due to the necessity of constant communications between lawyers involved in the litigation. In our view, there is no justification for extending the reach of the bills beyond those situations involving practice solely before the former employee's agency.
Perhaps more importantly, however, the bills could be interpreted to preclude a wide variety of communications and discussions that are unobjectionable by even the most stringent standards. We believe that the bill should be limited to precisely those situations viewed as troublesome-situations where a former ageney employee appears before his former agency for the sole purpose of influencing a substantive decision of the agency. Such a limitation would lend support to the basic principles upon which the bills are predicated, but would not undermine the capacity of agencies and former employees alike to obtain neces. sary information related to their daily work. In this connection, we note that the bills pending before your Committee are narrower than the bill, S. 555, passed by the Senate last June. Nevertheless, we believe that it should be made clear in the legislative history that the one-year prohibition on contact with the agency does not apply where the former member or employee does not seek to influence substantive agency action.
Moreover, we believe that the class of persons covered by the bill is too broad. As noted, this provision is unfair to existing senior staff personnel who accepted positions when the spectre of formidable career barriers was not present. We urge that the section be amended to make it applicable only to those persons who accepted appointments after the effective date of the act. This would be in keeping with President Carter's program of informing prospective appointees of an absolute post-employment bar before they decide whether to accept a position subject to such a condition.
We recognize that restrictions similar to those proposed in Title III have been imposed by President Carter on his appointees. But, there is a crucial difference between accepting a one- or two-year employment ban as a precondition to enjoying the prestige of a Presidential appointment and having such a ban unexpectedly imposed in the midst of a government career, begun when the restrictions were considerably less than those proposed in the draft bills. For those currently serving at middle-level positions, we fear that the consequence of the draft bills will not be to close the so-called “revolving door," but rather may be to assure that those persons will “revolve" out of the agency before they are promoted to positions subject to the prohibition in Title III. Thus, the end result may be exactly counterproductive; instead of inducing persons to make a career with the agency, the percentage of turnover of the senior staff is likely to increase just below the GS-16 level.
The bills pending before your Committee are an important step forward in improving the statutory framework regulating government ethics. But, in the process of adopting meaningful legislation, we believe it would be unwise for the Congress to lose sight of the basic values inherent in the present system. Changes that make government service disadvantageous will not serve anyone's legitimate purposes. These bills presently pending before your Committee could, unfortunately, produce that result. If amended in accordance with the suggestions set forth above, we believe that these bills can increase public confidence in government. Without changes of this nature, however, we are concerned that government service will become less attractive, and, indeed, will penalize the bright, capable individuals who otherwise have given so unselfishly of their talents in the public interest.
The views herein are those of the Commission and do not necessarily reflect the views of the Administration. Our views are being submitted simultaneously to the Office of Management and Budget. We are also simultaneously submitting these views to the House Committee on Post Office and Civil Service.
We would like an opportunity to testify on these bills and appreciate your consideration of the Commission's comments.
Mr. Pitt. I think, Mr. Chairman, that Commissioner Pollack has aptly expressed the views of the Commission. The important point to bear in mind is that we are not absolutely opposed to the postemployment prohibition. Our concern simply is that for an agency like ours, particularly given the all-encompassing nature of our regulatory reach, the implications of the absolute prohibition would create very serious problems, and might create a revolving door we do not think this committee wants to create.
Mr. DANIELSON. Thank you.
Ms. JORDAN. Mr. Chairman, I think Commissioner Pollack has expressed some of the general concerns.
You have been at the SEC for 31 years? What is the average longevity of the employee over there!
Mr. POLLACK. I cannot tell you what the average is overall, but our senior people have had long tenures. One of our division directors has been there over 20–25 years; another one has been there 15 to 16 years.
Harvey has been there 10 years. So, our senior people have been there for many years. What sometimes happens, for example, is that when their children grow up they have to go out to improve their earning capacity to put their children through college, and we find at that point some of them leave. Others who have been more fortunate, and particularly before inflation, were able to save some money, stay on, even during the time when their children are going through school, and some have been able to put them through.
Ms. Jordan. Yes, during your years with the SEC, have there been many instances of an employee who violated his public trust? How frequent is that occurrence, or has it been frequent?
Mr. POLLACK. I would say that over my 30-year stint, probably there have been half-a-dozen cases of impropriety across the whole board, and I may say that I think that we can pride ourselves at the SEC that we have vigorously pursued every one of those cases. And you will find the Commission's annual reports to the Congress descriptions of the examples of instances where we have prosecuted people for such things as improperly divulging information about potential action that the Commission is about to take.
Ms. JORDAN. Can you tell me; how did you discover that an employee had engaged in impropriety?
Mr. POLLACK. We require our employees to file reports of their securities transactions, and those reports in some cases have indicated that there were violations which we have been able to treat administratively. Other cases arise as a result of either a complaint that may be received from somebody, or information that somebody will pass on to us as to activities that seem to be inconsistent with the employee's
performance at the agency. I can think of one case where somebody on the outside was approached with respect to the fact that the agency was about to file an action against somebody. That disclosure was made to them in an attempt to obtain money in exchange for the information. We prosecuted both the people who accepted the information, and the employee who attempted to pass the information. We also monitor market activity, and investigate unusual trends.
Ms. JORDAN. Now, when you say “we prosecuted,” precisely what did
Mr. POLLACK. We reported it to the Federal Bureau of Investigation, and then we assigned our own people to assist the Federal Bureau of Investigation. Our people then assisted in the criminal prosecution by the Department of Justice. So, we played an important role in both the development and the prosecution of the case.
I should say for the committee that in order to improve the confidence of people whom we regulate and the integrity of our agency we feel that any instance of alleged impropriety on the part of our employees must be vigorously pursued, particularly when it approaches the illegality of the kinds of things that I have mentioned. We, therefore, just do not refer the case; we follow it and, where necessary to establish the necessary evidence for the prosecution, we will lend our people to the prosecuting authorities for that purpose. And we have done so in my time in at least two or three instances that I recall.
Ms. JORDAN. Well, Commissioner, if I understand you correctly, you support the overall thrust of the legislation before us, and you have reservations about a couple of the points in the legislation, but you feel that it is necessary legislation for this committee to consider in the public interest.
Mr. POLLACK. Absolutely.
And thank you, Mr. Commissioner. Would you have these same reservations on a bill involving Members of the Congress?
Mr. POLLACK. Yes.
Mr. Mazzoli. Let me ask you this, sir; maybe your General Counsel could help. I'm generally with you in some parts, but I'm not so sure whether there is any law to give us guidance as to what constitutes "practice before the SEC."
What constitutes-on page 3 of your letter, in there you use the term “having any connection with the agency,” you use the term "coming into contact with the agency," "practicing before the agency,” as distinguished from "practicing before an independent tribunal.”
So, maybe you can lead me through this morass of terms to find out, really, what we're trying to sanction and what we're trying to permit.
Mr. POLLACK. I expect, in the course of our agency's vigor in this area, that we probably interpret the term “practice before the agency" more broadly than anybody might do so on a literal application of that term. We apply it to people who may be working in their offices on documents which, ultimately, will come to the Commission. We apply it to people who may be giving interpretations, with respect to
the application of our law, to people who will then either come to us or file something with us.
So, we do not restrict it to personal contact with the agency. That, of course, is covered, but we approach the problem from the objective that we want to achieve if we say to somebody, “You are disqualified from practicing before us.'
And we have a vigorous program in that area. We probably have more disciplinary proceedings against professionals-lawyers and accountants—than any other similar agency of the Government, pursuant to rule 2(e) of our agency's Rules of Practice. We make it broad enough to encompass what our goal is : To prohibit people from practicing before us because of the danger that that represents to the public interest and to the public investors that we are there to protect.
Mr. Mazzoli. Let me ask you this, sir: Is this attitude on your part, this definition of contact and practice, is that replicated throughout Government?
Is this something that SEC has put together for purposes of its own kind of ethical standards that currently applies? And may I ask, then, the followup on that, which would be: Do you think that this attitude that you have told us today would be demonstrated throughout the Federal sphere of executives?
Mr. POLLACK. I am not sure that it has the same application at other agencies as I mentioned earlier, because of the pervasive nature of our regulatory and disclosure programs, we cover the whole waterfront. It is necessary, if we are going to protect ourselves, that we do not take a half-baked action. When we say, “Do not practice before us," an individual cannot be permitted to defeat the objective we are attempting to achieve by just not appearing before us, but instead going in the back door and engaging in the same type of practice that we have found improper.
Mr. Mazzoli. Let me ask you again, and maybe your General Counsel, do
you think we can draw a law that, if assuming the subcommittee has some sympathy to this kind of peculiar situation where you could exclude what might be considered practice in the inclusionary version of practice, which would mean officework, consultations with the lawyers who, then, themselves go into the forum, and exclude that part which we would consider to be associated, certainly, with the practice in that case but not directly into it, is there possibility of limiting this?
Mr. POLLACK. I think I would prefer that our ability to define broadly the term “appearance and practice before the Commission” not be cut back simply as a means of handling the 1-year prohibition, or only in that area. We would not, for instance, wish to apply such a narrow definition to a case where a former employee had official responsibility for a particular matter or had personal knowledge of it. We think that in such cases an employee ought to come in and file with us. We now have what is called a Rule 6 file, where somebody who comes in and practices before the agency after he has left will file a document saying-this is required the first two years after he leaves--"I had nothing to do with this case personally and I had no official responsibility for it. Here is my client's name and I intend to represent him. Will you be good enough to tell me whether you know of anything that I don't know."
for 2 years.
Because, for example, somebody may not be aware that there was some matter under his official responsibility. That is the way we monitor this.
So, my suggestion would be that that is the approach I would use during the 1 year. We would require it all to be done publicly, incidentally, that the former employee would file a document with the agency that would be publicly available, in which he would set forth, essentially, the information that I have just alluded to. And then the agency would pass upon that and forward it to the Office of Government Ethics in the Civil Service Commission that the bill would establish, so that they could monitor our determinations.
Mr. Mazzoli. So that the waiver would not apply to those who have direct contact with the case, or whose official duties in SEC, for example, did give them some authority over the case even if they didn't
Mr. POLLACK. Even without this part of the bill if they had official responsibility they are prohibited from apearing before the agency
Mr. Pitt. Your suggestion, though, points up what I believe is an important distinction--that is the breadth of a definition of appearing and practicing before an agency where you are seeking to disbar somebody who has given evidence of unprofessional conduct.
We have taken great steps, and with a certain degree of judicial sanction, to expand the definition of “appearing and practicing before” our agency to deal with instances where professionals have been found to engage in improper conduct. Thus, the definition is very expansive. But, where a former employee has had no contact with a particular matter or matters, where this matter was not within his or her official responsibility while at the Commission, and there is no indication of intent improperly to influence the substantive disposition of an agency action, but this is just somebody that worked at the agency, then, I think, it is in that area where we have our concern that the broad definition not be applied.
Mr. Mazzoli. Mr. Chairman, if I could ask just two more questions, and I'm going beyond my time.
Mr. Commissioner, your waiver, then, which would be a publicly issued-publicly asked for and publicly issued—waiver, would not apply to any person who had contact with this case as that would be described in the general, present-day application of SEC rules.
Mr. POLLACK. Correct.
Mr. Mazzoli. So, that waiver would only come to those who did not have official contact with that case even though they may have been with SEC within the previous year?
Mr. POLLACK. That's right.
Mr. MAZZOLI. And, then-well, I think you answered my question. Thank you very much.
Mr. POLLACK. Mr. Mazzoli, in answer to your question, I think it might be helpful for you to look at page 4 of our letter, the last paragraph, where we do attempt to give another alternative which might answer your question a bit more precisely than I did, that alternative would provide that the 1 year prohibtion would only apply if the former employee's contact with the agency is made for the purpose of improperly influencing a substantive decision of the agency.
My personal opinion is that the waiver is a much better provision than that alternative, because the alternative gets you into all subjec