An SEC official in the Fort Worth Regional Office who, to her credit repeatedly warned that Texas financier R. Allen Stanford was operating a huge Ponzi scheme, nonetheless saw her job marginalized.  Julie Preuitt began sounding alarms in 1997, but her concerns were ignored until 2009, when her bosses at the SEC finally brought action against Mr. Stanford.  Ms. Pruett and the SEC's Inspector General, H. David Kotz, told their accounts of the story at a Congressional hearing on Friday.

Ms. Preuitt's falling-out stems from a 2007 effort by Fort Worth SEC officials to increase examinations of financial firms.  Ms. Preuitt, who still works in the Fort Worth office, warned that the policy change was superficial and would cause regulators to avoid investigating complicated schemes, like the $7 billion fraud that Mr. Stanford is accused of running.  She brought the concerns to her bosses and later complained to officials in the agency’s Washington headquarters.  In turn, Ms. Preuitt received a letter of reprimand.  The SEC later transferred her to a nonsupervisory position, which in essence was a demotion.

“The commission has failed to discipline any one, at least not visibly, nor has there been any effort made to restore me to a position with similar duties and responsibilities to the one held before.  I paid a heavy price for complaining.”   - Julie Preuitt, in testimony before the House Financial Services Committee.

The issue was further complicated by internal drama at the Fort Worth office.  The SEC official who proposed the new examination policy had earlier edged out Ms. Preuitt for a high-ranking position in the office.  The SEC also argued that Ms. Preuitt failed to follow orders and issued her complaints in an antagonistic way.  The Inspector General's report did not dispute that claim - though he reiterated that some SEC officials mistreated Ms. Preuitt.

“We found that it was improper for Fort Worth management to take action against employees for voicing opposition to a program initiative and for bringing complaints to senior S.E.C. management.” - SEC Inspector General H. David Kotz, in prepared testimony on Friday.

    A Cultural Problem at the SEC.   Ms. Preuitt told lawmakers that she has been “excluded from training and participation in management meetings or decisions.”  She also warned lawmakers that her “situation should not be viewed in isolation.”  “It is part of a cultural problem which continues to impact the commission’s effectiveness,” she said.

The SEC declined to comment.   [Bloomberg, 5/13/12]