The internal watchdog for the U.S. Securities and Exchange Commission is probing whether enforcement staff committed acts of negligence in conducting an insider trading investigation.

Inspector General David Kotz's office said it is looking at a complaint that SEC staff had access to specific evidence that insider trading had occurred prior to staff closing the investigation.

The insider trading probe is one of 16 investigations Kotz's office is conducting, according to his semi-annual report to Congress that was released on Monday.

Kotz's office is also investigating allegations that an SEC enforcement attorney participated in an investigation even though a personal conflict of interest required his recusal from the probe.

The IG's office continues to probe allegations that two SEC enforcement lawyers repeatedly disclosed nonpublic information about agency investigations to a corrupt Federal Bureau of Investigations agent and a short seller. That agent and short seller were subsequently convicted of several criminal violations including fraud and conspiracy in connection with a stock short-sale operation, the report said.

An SEC spokesman declined to comment on Kotz's pending investigations, but said: We look forward to receiving the inspector general's findings.

The semi-annual report comes after Kotz issued his damning report in September on how the SEC failed to catch Bernard Madoff's fraud of up to $65 billion, despite repeated tips and red flags raised by the agency's own inquiries.

The SEC has agreed to implement Kotz's 58 recommendations to improve its enforcement division and Office of Compliance, Inspections and Examinations.

Kotz's report said that staff in the inspections unit made critical mistakes in nearly every aspect of their examinations of Madoff and his business.

Kotz has urged the SEC to create a protocol detailing how staff can identify red flags and potential securities violations based on information gleaned from sources.

(Reporting by Rachelle Younglai; Editing by Tim Dobbyn)

Insider trading