According to the Office of the Inspector General, by failing to abide by its own practices when hiring Henry Hu as Division of Risk director, as well as the guidelines provided by the Office of Personnel Management, the Securities and Exchange Commission unnecessarily spent $100,000. Details of these findings were provided in a report released by the SEC late last month.
The “unprecedented arrangement” with Hu covered his living expenses in DC when he worked as an SEC division director between 9/09 through 1/11. He is now back at work as a professor at the University of Texas Law School.
Specifically faulted over this matter was ex-SEC Executive Director Diego Ruiz, who the Office of Personnel Management said was the person mainly responsible for the offer to cover Hu’s living costs while he worked for the Commission. Ruiz, who has resigned from the agency, was also allegedly involved in the SEC’s misuses of its independent leasing authority. Because Ruiz is no longer with the agency, no disciplinary action will be taken against him.
Hu was approached by the SEC after an op-ed piece that he’d written about Goldman Sachs was published. In his article, Hu talked about how the financial firm’s use of credit default swaps related to its loans to AIG had resulted in an distorted incentive because it let Goldman Sachs not have to deal with economic exposure to losses on the loans even as it retained its right to call the loans. SEC Chairman Mary Schapiro later offered him a position at the agency as head of a new unit that would colloquially be called the “Office of Smart People.”
The SEC paid back the University of Texas 314,198.26 for Hu’s benefits and salary. The agency also spent approximately $120,000 to cover Hu’s plane fare, living costs, and housing. The per diem that Hu was given was a first for the SEC and not in line with OPM guidelines.
The offer to Hu did not include a cap on how much the agency would pay for living expenses. Per the SEC report, and even as these costs mounted, the agency did not attempt to renegotiate the terms of the agreement when it was renewed with Hu.
Usually federal employees are given a $9,000 relocation allowance. However, SEC Chairman Mary Schaprio, reportedly told the OIG that she believed the agreement with Hu was similar to other hiring arrangements previously made with the SEC.
The OGI is recommending that the SEC’s COO establish guidelines for arramagnements made under the Intergovernmental Personnel Act, which was the statute used to hire Hu. Guidelines should include specifics regarding when a per diem arrangement like the one made with Hu can be offered and financial caps should be included.
OIG: SEC Blew $100,000 by Not Following Guidance in Hire Arrangements for Director, BNA Securities Law Daily, September 30, 2011
Read the OIG Report (PDF)
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Bill Funding SEC at $1.185B for Fiscal Year 2012 Approved by House Committee, Stockbroker Fraud Blog, June 24, 2011