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Federal regulators may not have seen the recent financial crisis coming, but they certainly seem to be predicting some internal trouble in the near future. A Washington Post/Bloomberg report says that many past and current players at the Securities and Exchange Commission are “lawyering up.” Reporter David S. Hilzenrath has identified SEC chairwoman Mary Schapiro, former agency GC David Becker, and former ethics officer William Lenox as among those who have retained private counsel in the face of ongoing investigations by the office of H. David Kotz, the SEC’s inspector general. “The hiring of lawyers has become common when the SEC becomes the subject of investigations and political recriminations,” Hilzenrath writes. “SEC spokesman John Nester said SEC lawyers are not allowed by the agency to represent employees in connection with inspector-general probes.” The investigations currently underway through Kotz’s office include “a $557 million lease for office space the agency did not need and could not afford” and “an alleged conflict of interest involving the agency’s work on compensation for victims of Bernard Madoff’s investment fraud.” The lawyers retained by the SEC officials may find they have even more work ahead of them, as the buck is unlikely to stop with the IG. The Post reports that Congress is eyeing the progress of the investigations as possible fodder for hearings on Capitol Hill. Between the ongoing investigations and the possibility of contentious hearings, the lawyers’ clients can expect to ring up big legal bills. Hilzenrath writes, “A colleague of Schapiro’s recounted that the SEC chairman once said that she had incurred tens of thousands of dollars of legal expenses in connection with an inspector-general probe last year involving the agency’s handling of a case against Goldman Sachs.”

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