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March 24, 2010 5:09 PM

Blistering SEC Watchdog Report Criticizes Ex-Venable Partner

Posted by Zach Lowe

An ex-Venable partner is back in the spotlight for his conduct during the SEC's investigation of the equity firm Allied Capital, thanks to a government watchdog report the Washington Post obtained late Tuesday that criticizes that investigation. The ex-partner, Mark Braswell, who left Venable in 2005 and could not be reached for comment, steered the SEC's enforcement office away from investigating Allied Capital for allegedly overvaluing its holdings, the report concludes

Braswell's motivation for doing so is unclear. As an enforcement director overseeing the Allied case, Braswell instead directed the focus of the investigation onto David Einhorn and Einhorn's fund, Greenlight Capital, according to the report by the SEC's inspector general. Einhorn was a would-be whistle-blower who angered Allied in 2002, when he said in a public speech that he was taking a short position on Allied because he suspected possible fraud in Allied's public valuation statements, according to the report, this WaPo write-up, and this analysis in The New York Times

Braswell left the SEC in 2004--after colleagues raised questions about his performance--and went to work as a partner at Venable. He registered as a lobbyist for Allied Capital shortly after his hiring at Venable, and he later had a female associate pose (on the phone) as Einhorn's wife in order to obtain Einhorn's phone records, the report concludes. Venable and Einhorn distanced themselves from Braswell, saying Braswell acted alone in obtaining the phone records, and that he did so to prove that Einhorn was conspiring to hurt Allied, the report states. 

Einhorn has leveled most of these allegations against Braswell already in his book "Fooling Some of the People All of the Time," which chronicles the Einhorn-Allied feud. But the inspector general's report lends new credibility to Einhorn's allegations and sheds more light on Braswell's conduct and the course of multiple SEC investigations into Allied, the NYT says. 

A Venable spokesman did not return a message seeking comment on Braswell. Braswell left Venable in 2005 and moved to Thelen, according to records from Thelen's Web site

Reading the report, one might wonder how much Venable knew about Braswell when the firm hired him. His credentials were obviously solid. He had spent nearly nine years at the SEC and followed another senior SEC attorney, Nancy Grunberg, from the agency to Venable. (Grunberg remains at the firm. ) But the inspector general's report indicates that Braswell's colleagues at the SEC asked him to leave the enforcement division for performance reasons. Braswell often showed up late to work and waited until the last minute to complete assignments, the report says. His colleagues joked that Braswell spent so much time monitoring his real estate investments that his "real job" was in fact in real estate, the report says. 

In any case, Braswell turned against Einhorn almost immediately after Einhorn began raising questions about Allied in 2002 and 2003, the report shows. Braswell arrived late to SEC interviews with Einhorn and spent hours asking "combative" questions that troubled other SEC lawyers and Einhorn, the report says. The agency dropped the investigation after some serious miscommunication between two SEC offices, the report says. 

The agency began investigating Allied again in 2006, and the firm hired Wilmer Cutler Pickering Hale and Dorr and DLA Piper, the report states. The firms, particularly Wilmer, initiated meetings with the SEC and brokered a settlement in which Allied would not face fraud charges. The SEC seemed very impressed with one unnamed Wilmer attorney who showed up at one settlement meeting. The presence of that attorney, a former SEC enforcement higher-up, indicated that Allied was "heavily, heavily armed," one SEC staffer is quoted as saying in the inspector general's report. The Wilmer partner "gets brought down from on high for certain events. And this was one of them," the SEC staffer told the inspector general's office. 

Einhorn released a statement today saying the inspector general's report is another sign that he was right to raise questions about Allied. Einhorn was long represented by Richard Zabel, who left Akin Gump Strauss Hauer & Feld last year to take a government position.

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The description of the Wilmer partner (brought down from on high for big events, former SEC enforcement higher-up, etc.) clearly refers to Bill McLucas.

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