The SEC seems unable to escape from behind the dark cloud of scandal. The Enforcement Division seemed to be emerging from behind the Madoff-Stanford cloud with its reorganization, Goldman settlement, first non-prosecution agreement and other achievements.

Now however a new cloud had emerged according to Bloomberg and Reuters. This one is big and dark. Its called the SEC Inspector General following a congressional request. He is reportedly investigating Commission Enforcement Director Robert Khuzami. The question is whether Mr. Khuzami gave favorable treatment to Citigroup when it settled an enforcement action with the Commission last year (here). According to the media reports the request came from Republican Senator Charles Grassley who forwarded an unsigned letter to the SEC IG. Apparently the letter claims that Mr. Khuzami told the staff to go easy on Citi after meeting with its attorneys.

Since the SEC Enforcement Manual requires that more than one staff member participate in such meetings, the investigation should be straight forward and quick. It should not take a lengthy inquiry to resolve this question. Indeed, at the time the settlement with Citigroup was presented to the court for consideration, U.S. District Judge Huvelle raised questions about the deal. To be sure there were significant questions about that settlement (here). After careful consideration however Judge Huvelle deferred to the judgment of the Commission and approved the settlement.

This is not the first such inquiry by Mr. Kotz and his office. Previously he commenced an investigation into the Goldman case at the request of Republican Representative Issa. That inquiry, which found no wrong doing, was conducted while the enforcement action was pending, raising significant questions about its propriety (here). Mr. Kotz has also garnered headlines by making suggestions during public remarks about matters under his charge.

Here it is in the best interest of all that this matter be resolved quickly and efficiently. The Commission needs to move past this black cloud.