Report: SEC Gave "Preferential Treatment" to Wall Street CEO

October 6, 2008— -- The SEC gave "preferential treatment" to Wall Street executive John Mack during an insider trading investigation three years ago because Mack was about to become CEO of the Morgan Stanley investment banking firm, the SEC's inspector general concluded in a report obtained by ABC News.

The report recommended disciplinary action against the SEC's chief of enforcement, Linda Thomson, and said the firing of an SEC lawyer was "connected" to his persistent attempts to take Mack's testimony. Read the report's conclusion and recommendations here.

"There's a culture at the SEC that they're not willing to take on the big boys, whether big economically or big politically," said Sen. Charles Grassley (R-IA) who requested the inspector general's investigation.

It is a damning indictment of the SEC at a time when it is being asked to step up its enforcement action against Wall Street.

"They ought to be able to challenge anybody regardless of their economic might or regardless of their political might," said Sen. Grassley.

Grassley asked for the investigation after a SEC lawyer who sought to take Mack's testimony, Gary Aguirre, was fired.

"I was told that it would be very difficult to get approval to take his testimony because of his powerful political connections," Aguirre told ABC News in an interview for Good Morning America.

When he says he persisted, he was told to go on vacation and then notified he had been fired.

"We were trying to immediately sit the people down and nail them down to a story, this was the sole exception," Aguirre said.

Aguirre said the inspector general's findings are "about as close to the truth as you can expect from an agency whose mission has been so deeply compromised."

The report concluded, "there was a connection between the decision to terminate Aguirre and his seeking to take Mack's testimony."

"Wall Street has long tentacles," said Aguirre, "and those tentacles reached into the SEC and cost me my job."

The Inspector General found Aguirre's superiors at the SEC provided Mack and his lawyers with information that "could prove very useful in preparing a defense."