The acting general counsel of the National Labor Relations Board has been faulted by the agency’s inspector general for participating in discussions about the legality of Wal-Mart’s social media policy because he also had a financial interest in the company—about $18,000 worth of Wal-Mart stock.

Inspector General David Berry found no evidence that Acting General Counsel Lafe Solomon “acted with the intent to enrich himself,” but he also found that any NLRB case “involving Wal-Mart’s social media policy would have a direct and predictable effect on [Solomon's] financial interest.”

Since the NLRB imposes no fine on companies for improper social media policies, but instead just requires them to bring their policies into compliance, it’s not clear how much the value of Solomon’s 300 shares of Wal-Mart stock would have actually been affected.

Still, the inspector general found Solomon was wrong to participate in a January meeting about the case, where he allegedly directed agency lawyers to contact Wal-Mart and try to resolve the issue before filing suit. Berry also blasted the NLRB’s ethics program for its “complete failure” and said “the environment at the NLRB in which this violation occurred was dysfunctional and adversarial.”

See the Inspector General’s Report and Solomon’s Response.

Rather than suing Wal-Mart, NLRB lawyers negotiated with the company behind the scenes to fix its policy, according to the Sept. 13 report, which was released by the House Oversight and Government Reform Committee and the House Committee on Education and the Workforce.

In July, when Solomon released detailed guidance for employers on how to craft a social media policy, the NLRB included an anonymous model policy, the one held out as doing everything right. The policy was identified by labor lawyers at the time as belonging to Wal-Mart, though it was not widely known that the NLRB had a hand in shaping it.

That contention is backed by the IG’s report, which states that when meeting with Wal-Mart counsel, the NLRB lawyers said it “was in the Agency’s interest to have a policy that they could use as guidance to what a lawful social media policy looked like.”

Solomon’s lawyer, William Taylor III of Zuckerman Spaeder, denied any wrongdoing in a Sept. 14 letter to Berry. “Mr. Solomon did not commit even a technical violation of the applicable rules,” he wrote. “There is no suggestion that Mr. Solomon acted with any intent to violate his ethical obligations.”

The episode began in January, when lawyers at agency headquarters first greenlighted a case against Wal-Mart for having what was deemed to be an over-broad social media policy. The policy allegedly ran afoul of Section 7 of the National Labor Relations Act, which gives non-unionized workers the right to engage in concerted actions, because it barred employees from presenting people or the company in a bad light, posting photos of customers or associates, or using the company logo.

The NLRB has brought more than 100 cases involving some aspect of social media, and Solomon in the report is described as “architect of the social media policy” at the NLRB. As such, he reviews all social media cases—including the Wal-Mart matter.

The problem was, he inherited 300 shares of Wal-Mart stock after his mother died in July 2011. The stock, worth about $18,000, represented 1.25 percent of his and his wife’s stock portfolio, he said. But agency ethics rules prohibit employees from participating in matters involving companies in which they have a financial interest in excess of $15,000.

Solomon asked for a waiver on Jan. 30 to participate in the case, but the request came a week after he attended a Jan. 23 meeting about the matter. At the meeting, he said he was concerned there would be a negative reaction if the NLRB filed a complaint against Wal-Mart, and directed agency lawyers to “settle the Wal-Mart case by contacting Wal-Mart’s counsel and getting Wal-Mart to amend the social media policy to comply with the law,” according to the report.

Solomon’s “intent was to have [the lawyers] complete their work while he requested a waiver,” the report states. Further, he did not believe his participation in the matter was substantial enough to violate the ethics rules.

But Solomon’s request for a waiver was denied by the agency’s director of administration, who found that there was no compelling reason to grant it, and that the deputy general counsel could act in his place. On Feb. 27, Solomon sold his Wal-Mart stock.

Solomon’s lawyer Taylor wrote that the denial came from “an NLRB official who deliberately misapplied the governing standards, was embroiled in a contentious personnel issue involving her management of the Division of Administration, and indeed was not authorized to grant or deny his waiver request in the first instance.”

Further, Taylor wrote to Berry, Solomon knew all along he would either get the waiver or sell his stock before any final decision was made to proceed against Wal-Mart, nor did he participate in any further meetings until the stock was sold. “There is no suggestion, nor does your report make one, that the fact of Mr. Solomon’s unresolved financial conflict on January 23, 2012, affected the agency’s process in how it addressed and resolved the Wal-Mart social media matter.”

Inspector General Berry wrote that Solomon “should have known not to act, absent a waiver, in the matter given his acknowledgement that he was aware of the need for a waiver of the financial conflict of interest.”

He also pointed a finger at the deputy general counsel, Celeste Mattina, who he said should have stopped him. “That everything failed to stop Mr. Solomon is evidence of the complete failure of the NLRB’s standards of conduct program with regard to the Office of the General Counsel.”

Solomon’s troubles are in some ways reminiscent of those faced by former Securities and Exchange Commission General Counsel David Becker. Like Solomon, Becker inherited assets from his mother—in his case, money from a Bernard Madoff account. He then advised on agency policies to compensate the fraud victims, a potential conflict of interest. However, Becker sought and received ethics office clearance to work on the Madoff case.

Nonetheless, Becker was skewered by former SEC inspector general H. David Kotz, who referred the matter to the Department of Justice for possible prosecution. DOJ declined.