SEC Chairman Warns Staff About Leaks

William H. Donaldson, chairman of the Securities and Exchange Commission, warned the agency’s employees about leaking sensitive information to the news media and raised the possibility of limiting the number of people with behind-the-scenes access.

Donaldson, in an April 29 e-mail that itself was leaked to the media, expressed specific concern about recent leaks involving possible insider trading charges against Wall Street analyst Holly Becker and her husband, stock trader Michael Zimmerman.

The chairman said he found newspaper stories about the Becker matter “particularly outrageous.”

“The kind of leaks we have seen over the past few weeks are fundamentally unfair to the people and companies being investigated, but not yet charged,” Donaldson told staffers.

“In addition, they damage our efforts to conduct effective investigations that lead to enforcement actions and ultimately protect the investing public.”

Donaldson’s admonition is unusual because he suggests that the agency may have been responsible for disclosing the confidential information, securities lawyers said. When leaks occur, defense attorneys are quick to blame the SEC, and the SEC normally points the finger at defense lawyers, the lawyers said.

“I don’t ever remember a situation where the SEC even implied that there might have been a leak on the part of its staff people,” said former SEC Commissioner Edward Fleischman.

Donaldson’s e-mail reinforced a message in another agencywide e-mail, sent by his aide Patrick Von Bargen five days earlier, after a story about the Becker investigation aired on CNBC and appeared in other news outlets.

The SEC is investigating trades Zimmerman made in 1999 when he worked at Leon Cooperman’s Omega Advisors Inc. and Internet analyst Becker was at Citigroup Inc.’s Smith Barney unit, the New York Times has reported, citing an unidentified person.

The commission also is investigating trades Zimmerman made in 2000, people familiar with the matter have said.

The SEC has told Becker and Zimmerman that it plans to sue them for insider trading, the people said.

Becker, who joined Lehman Bros. in March 2000, is on leave from the firm, which suspended her in August. Lawyer David Brodsky, a partner at Cleary, Gottlieb, Steen & Hamilton in New York who represents Becker and Zimmerman, declined to comment on Donaldson’s e-mail.

For several reasons, the SEC has a long-standing policy of not commenting on investigations. For example, an announcement of a probe does not mean someone has done something wrong, Donaldson’s spokeswoman, Anne Womack, said.

“When investigations are ongoing, you haven’t come to a conclusion and ultimately you may find there’s been no wrongdoing,” she said. “You tarnish that person’s reputation, and it has profound effects on them and their personal lives.”

Nearly all legal matters at the SEC are handled behind closed doors.

Donaldson cautioned that continued disclosure of confidential information might lead to putting limits on the number of SEC staff allowed to attend nonpublic meetings where the SEC’s five commissioners consider enforcement charges.

But he added: “The last thing we would ever want to do is restrict the number of people who have access to information regarding ongoing commission business, especially in the context of closed commission meetings.”