Chris Prentice and Sarah N. Lynch

(Reuters] – Carl Hoecker, the U.S. Securities and Exchange Commission inspector general, leads investigations into allegations of wrongdoing committed by employees. In one case, however, it was Hoecker himself who was under an investigation – one that concluded in 2019 with a recommendation that the agency consider firing him for “serious misconduct,” government records reviewed by Reuters show.

Instead, the agency decided to temporarily suspend Hoecker with no pay in May 2020 for an undisclosed time. He’s back on the job as the Wall Street regulator’s internal watchdog.

Hoecker was investigated by the Integrity Committee. It is a federal committee that investigates allegations against inspectors general. The findings of the investigation into Hoecker have never been reported before.

The committee concluded that Hoecker abused his authority by conducting a “remarkably biased and flawed” internal probe into allegations against two of his employees, who had also worked for Hoecker at another agency. The inspector general’s investigation, which involved an alleged sexual relationship between the employees, “created the appearance that he attempted to conceal potential wrongdoing” by the two staffers, according to the committee’s report on its investigation into Hoecker, which Reuters obtained through a public-records request.

The committee also found that Hoecker misled investigators, displaying a “lack of candor” throughout the review. In addition, Hoecker “improperly confronted” and questioned a witness – one of his subordinates – about what she had told the committee’s investigators, the report said.

“Hoecker abused his authority in the exercise of his official duties and engaged in conduct that undermines the independence and integrity” expected of an inspector general, the committee concluded in its report. It recommended that the SEC take “appropriate disciplinary action for this serious misconduct, including removal,” according to a summary of the case in an annual government report.

Hoecker’s attorney and he did not reply to our requests for comment. Hoecker disputed the Integrity Committee’s allegations in a March 2019 rebuttal to its initial findings, saying he undertook the probe “in good faith” and conducted an “objective and thorough” investigation.

On its handling of Hoecker’s committee findings, the SEC refused to comment. Jay Clayton (former Chair of the SEC), who was in charge at that time when Hoecker’s suspension occurred, didn’t respond to any requests for comment.

Two whistleblowers had alleged that Hoecker was conducting a substandard investigation to protect the employees. The committee opened an investigation into Hoecker. Two employees, a male supervisor and a female agent, were charged with skipping work while being paid to go on a sexual relationship. In addition, the supervisor was charged with giving preferential treatment to the agent.

Hoecker’s investigation cleared the pair of those allegations. It found instead that the male supervisor “created the appearance of an inappropriate relationship” and concluded the matter with minimal discipline, the committee said.

Hoecker told the committee in a March 2019 rebuttal to its draft findings that he did not investigate whether the pair were actually having sex because “a sexual relationship between employees is not prohibited by SEC policy.”

A policy issued to SEC employees by the SEC in February 2016 was shared with Reuters. It requires supervisors who have a sexual or romantic relationship with subordinates to inform the agency. According to policy, failure to notify the agency could result in termination.

The SEC’s Office of Inspector General did not respond to requests for comment. The two employees, whose names are redacted from the Integrity Committee’s report, didn’t respond to requests for comment. One of the employees remains at the SEC inspector general’s office; the other is now working for the inspector general’s office at another federal agency.

The U.S. Council of the Inspectors General on Integrity & Efficiency (CIGIE) is the federal agency that houses the Integrity Committee. CIGIE Executive Director Alan Boehm did not comment on the SEC’s reaction to the committee’s investigation into Hoecker but said CIGIE takes misconduct allegations against inspectors general seriously.

Although the Integrity Committee didn’t issue any findings about whether or not they had a sexual relationship, its investigation focused more on Hoecker’s conduct of an adequate investigation.

The Integrity Committee rarely recommends agencies consider terminating an employee the committee investigates, according to a Reuters review of CIGIE’s annual reports, which include summaries of committee investigations and recommendations.

Michael R. Bromwich, a former Justice Department inspector general, said he was surprised Hoecker was not fired, noting that he had “never heard of leaving someone in charge of a law enforcement or accountability agency who has had allegations like this sustained against him.”

The committee’s finding that Hoecker showed a “lack of candor” during its review of his actions is a serious one, according to four former government attorneys. These findings often lead to termination for law enforcement officers like Hoecker. Such allegations can undermine a law enforcement official’s standing as a witness in criminal cases because his or her credibility can easily be undermined by defense attorneys, said John Berry, an attorney specializing in disciplinary action defenses.

Lack of candor findings are “almost always a death knell” for law enforcement officials, Berry said.

In his rebuttal, Hoecker does not directly respond to the “lack of candor” finding, but contends that the committee’s draft report mischaracterized his responses to investigators.

CO-WORKERS LONG-TERM

The Integrity Committee found that the problems started with Hoecker’s decision to conduct the investigation into his associates in the first place. His office’s general counsel advised Hoecker to turn over the investigation to an independent third party because Hoecker’s relationships with the workers being investigated raised concerns about the investigation’s impartiality, the committee said in its report.

According to the report, Hoecker instead appointed one of his employees, who had also been in a relationship with the accused workers. Hoecker, the staffer he assigned and the two employees being investigated had all worked together previously at the Treasury Department’s inspector general’s office. Hoecker had hired all three of them when he became the SEC’s inspector general in 2013.

A request to comment was made via LinkedIn by the investigator, but his name has been redacted.

Hoecker stated in March 2019, his rebuttal, that he chose the investigator after having known him for many years and had faith in his objectivity. Hoecker characterized his and his investigator’s relationships with the accused as professional, not personal. He said that their connections didn’t require them to recuse themselves.

The resulting probe found “no direct evidence” that the two employees were sexually involved or that the supervisor gave the agent preferential treatment. Their absences were not unprofessional, it concluded.

The committee noted that Hoecker’s finding came despite circumstantial evidence of the employees’ sexual relationship. One example of that evidence was an incident where the workers were found locked in an evidence area. A witness observed the supervisor “zipping his pants” and both employees being “shocked and flustered.” Other potential evidence included “sexual banter between them” and an expensive gift one gave to the other, the committee report said.

The committee found Hoecker’s investigators did not pursue “obvious leads” and chose to assume the pair “could have been conducting official business” during their absences without investigating whether they, in fact, were. 

‘HIGHLY UNUSUAL’ ERROR

Hoecker’s agents also did not read to the couple their Fifth Amendment rights of self-incrimination prior to interviewing them. The committee stated that this failure could hinder any criminal charges that may arise from these inquiries. The committee report called it a “highly unusual” error had not occurred in 59 previous SEC inspector general probes over three years, the committee noted.

“This serious omission suggests a predisposition to limit the investigation to administrative channels, no matter what the evidence showed,” it said, adding that the time-and-attendance fraud allegations were potentially criminal.

The committee offered Hoecker the opportunity to reply to the almost-compete draft of its report in August 2018. However, the names and addresses of witnesses were redacted. Hoecker nevertheless deduced one witness’ identity and called her on her personal cellphone on October 10 after working hours to find out what she told investigators.

In Hoecker’s letter disputing the allegations, he said he had “no intention of intimidating, threatening, or retaliating” against the employee. Hoecker stated in the committee’s report that contact with the witness did not violate any rules. It calls Hoecker’s statements about the call “lacking in credibility,” particularly for an experienced law enforcement official.

According to government records, the SEC suspended Hoecker in May 2020 seven months after it received the report. There were four members of the commission at that time, and the fifth was vacant.

Reuters was unable to determine the duration of suspension and the position of each commissioner on this matter. Each of them did not reply to inquiries for comment.