TEXT OF STORY

KAI RYSSDAL:Earlier this month, the chief executive of the big investment bank Morgan Stanley, John Mack, got some good news. The Securities and Exchange Commission had cleared him of insider trading charges. But now, congressional investigators have come calling on the SEC. They want to know if securities regulators went too easy on the politically-connected CEO. From Washington, John Dimsdale looks at the investigation into the investigators.

---

JOHN DIMSDALE:Last year, an SEC investigator thought he might have evidence that John Mack used inside knowledge of an impending merger to help his friends at the Pequot Capital Management hedge fund turn a quick $18 million profit, but the investigator claimed he was fired when his bosses at the SEC said his inquiries were getting too close to Mack, just as Mack was taking over as CEO of Morgan Stanley.

Eventually the SEC interviewed Mack and dropped the investigation, but the fired SEC attorney complained to Congress, which has asked the Government Accountability Office to look into the SEC’s handling of the case.

Senate Finance Committee Chairman Charles Grassley of Iowa worries the SEC is too close to the stock exchanges it regulates.

David Ruder, who as SEC chairman in the late 1980s conducted high profile investigations into junk bond king Michael Milken, rejects Senator Grassley’s charge.

DAVID RUDER:I would think he doesn’t have enough information, or the right information to make that kind of statement. In fact, the SEC has a very independent enforcement program.

But Professor Emeritus Junius Peake at the University of Northern Colorado says there’s a fast spinning revolving door between the regulators and the regulated.

JUNIUS PEAKE:It’s sort of like a private club in many respects. You tend to get a little bit into a circular thinking pattern.

The SEC says it welcomes the GAO review. The current SEC chairman should know how to handle the congressional pressure. Christopher Cox is a former Republican congressman from California.

In Washington, I’m John Dimsdale for Marketplace.