Wednesday, May 25, 2011, 05:20 pm PT (08:20 pm ET)
SEC internal probe investigates Apple's role in $1 million purchasing scandalThe U.S. Securities Exchange Commission has implicated itself in a report detailing a series of internal purchasing violations of Apple products that cost the SEC as much as $1 million.
Reuters uncovered the report, which was filed by SEC Inspector General David Kotz in December 2010. Kotz, who serves as the agency's 'internal watchdog,' discovered "numerous problems" with both the purchased equipment and the procurement process, the report noted.
According to the probe, an Apple salesman convinced the SEC in 2008 that the storage firm Cloverleaf Communications could provide a more affordable solution to the agency's backup needs. The SEC then violated federal procedure by securing a no-bid contract with Cloverleaf. Cloverleaf was acquired by Dot Hill Systems in 2010.
After looking into the alternative options, Kotz found Cloverleaf's services "to be more expensive than other, better-known and less risky alternatives."
Kotz also discovered that the SEC had "improperly shared budget information" with Apple and proceeded with purchases before securing the proper approval and conducting reviews, according to the report.
While implementing the new technology, the SEC experienced numerous problems. Kotz noted that bugs in the installation were not worked out and the project "quickly went downhill from there." According to Kotz, one SEC supervisor even attempted to cover up the issue. After staff informed a superior of the problems, the supervisor reportedly told them "this information doesn't leave the room."
SEC spokesman John Nester said in statement that the agency agrees with Kotz's findings and is "taking steps to improve our policies and controls over purchases of information technology solutions, including pre-purchase review by management's technology and business oversight committees."
News of the budgetary improprieties comes as the SEC has requested a $222 million, or 16 percent, increase to its budget for the 2012 fiscal year, which begins Oct. 1. According to Reuters, Kotz's report could "provide ammunition" to Republican lawmakers seeking to block funding to the regulator.
Though Apple is no stranger to SEC investigations, the recent probe is unusual in that it involves the SEC investigating itself. In 2007, the SEC settled with Apple's former chief financial officer in an investigation alleging several of the company's executives had backdated stock options. The agency has also looked into suspected insider trading of Apple stock in years past.
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