Fired SEC Inspector Settles with the Commission over Whistleblower Retaliation Lawsuit

David Weber, a former internal investigator to the Securities and Exchange Commission (“SEC”), has settled his lawsuit with the Commission for $580,000. Weber’s lawsuit, filed in November of 2012, alleged that the SEC had fired him a month before in retaliation for blowing the whistle on conflicts of interest involving former Inspector General David Kotz, and security concerns involving the vulnerability of highly sensitive data held by SEC IT information security examiners from the SEC’s Trading and Markets Division.

Weber began working as the SEC’s Assistant Inspector General for Investigations at the Office of Inspector General in January 2012. Three months later, in March 2012, Weber brought to the attention of the SEC Commissioners concerns that Kotz was involved in personal relationships with individuals involved in the Madoff and Stanford Ponzi Scheme investigations that created conflicts of interest, and concerns that IT examiners failed to encrypt laptops containing highly sensitive data gathered from financial exchanges, including the NYSE.

Weber’s allegations caused the SEC to consult with Inspector General David Williams of the U.S. Postal Service to conduct an outside review. His review, known as the Williams Report, concluded that Kotz created conflicts of interest by supervising both the Madoff and Stanford investigations while he maintained close friendships with Harry Markopolos, a Madoff whistleblower, and with Gaytri Kachroo, an attorney who represented a group of Stanford victims. Williams also concluded that Weber’s other allegations – that IT examiners loaded highly sensitive data from financial exchanges onto laptops that were not encrypted before attending an information security conference – were accurate.

The SEC placed Weber on administrative leave after it alleged that employees complained that Weber desired to carry a firearm with him, that Weber had worn a bullet-proof vest in the office, and that Weber had, as a result, created a hostile work environment. Ultimately, Weber was fired from the SEC in October after he allegedly carried a firearm with him while on duty. He filed the lawsuit shortly thereafter in November, alleging that his firing was in retaliation for blowing the whistle on the problems he found within the SEC.

The settlement awards Weber $580,000 – the third largest federal whistleblower payout. As part of the settlement, the SEC has also agreed to rescind Weber’s termination and reinstate Weber, and to remove any “negative” references from his employment file – although the SEC has stated that they are not expecting Weber to return to his post.