(Bloomberg News) The U.S. Securities and Exchange Commission's internal watchdog has come under scrutiny for comments he made in a 75-minute videotaped interview about the agency and the stock market to a man who markets a "crash-proof retirement" plan through the Internet and a paid radio program.

SEC Inspector General H. David Kotz has been contacted about the matter by the agency's general counsel's office, which also has briefed the SEC's commissioners over concerns the interview could be construed as investment advice or an endorsement of financial services.

Phillip Cannella III, chief executive officer of First Senior Financial Group in King of Prussia, Pennsylvania, edited the interview he conducted at SEC headquarters in late July into more than a dozen video segments. He posted them on YouTube and his website, www.crashproofretirement.com, and plays them on the radio as well as during his seminars about insurance products for retirees.

The SEC doesn't ban its employees from interviews with people connected to commercial ventures. Kotz said he cleared the matter in advance with the SEC's internal ethics counsel. He told SEC officials he would ask an outside group, the Council of Inspectors General on Integrity and Efficiency, to look into whether he said or did anything improper in the interview, according to two people briefed on the situation.

The Federal Bureau of Investigation, which oversees the panel within the inspector general's group that deals with integrity matters, doesn't comment on its inquiries, said William Carter, an FBI spokesman.

'Appropriate Caveats'

Kotz said in an e-mailed statement to Bloomberg News that he provided "all the appropriate caveats and disclaimers" to Cannella and "specifically stated in the radio interview that I was not in a position to, nor was I, providing investment advice."

SEC Chairman Mary Schapiro said in a statement that she appreciated that Kotz requested an independent review.

"David Kotz is an experienced professional with expertise in the ethics rules who I believe would not intentionally create an appearance issue," Schapiro said.

The SEC didn't say if it was taking further action on the matter. The agency's ethics counsel, Shira Pavis Minton, didn't respond to a request for comment.

In the interview segments posted on the website, Kotz discusses issues ranging from the Bernard Madoff fraud to the difficulties the SEC faces policing Wall Street. A press release issued by Cannella's company headlined Kotz's suggestion that retirees consider cutting their investments in stocks.

'Turbulent Times'

"So much money is in the stock market where people's lives are so affected by it, that sometimes it may make sense to take things out in turbulent times to ensure that you're not living and dying, so to speak, by the Dow Jones going up and down," Kotz told Cannella as the two sat in the agency's Washington offices in front of the SEC seal. "Particularly with what's occurred over the last several years."

Kotz also discusses the SEC's past shortcomings and says the agency has improved, being a "fundamentally different place now than when I first started at the SEC and before we issued our Madoff report."

Cannella said in a phone interview that he was contacted by an SEC attorney several weeks ago asking that he put a disclaimer on the videos to make clear that neither the agency nor Kotz endorse, sponsor or promote his firm. Cannella said he quickly complied. Kotz said he supported efforts by the SEC's general counsel's office "to ensure that my interview is not being used to endorse any product."

'Not a Journalist'

Cannella said he was pleased to be able to interview a high-level government official like Kotz -- a man he said he greatly respects. While it costs him $12,000 a week to air the radio show on two Philadelphia area stations, Cannella said he treats it like a consumer advocacy program, not an infomercial.

"I can't believe myself," Cannella said. "I'm not a journalist, and I got over a 75-minute interview with Kotz inside the SEC building."

Besides the radio program, Cannella said, he holds "educational events" in restaurants where he teaches people in their 50s and older about "safe investment alternatives in the insurance industry." His website has clips of prospective clients being asked about their reaction to watching the Kotz interview.

One woman, who wasn't identified in the video, said that Cannella's interview with the inspector general shows that the host is "standing up for the little people, and very admirable, and that's one of the reasons that I'm very anxious to proceed with Phil."

Probes

In another clip, an unidentified man said, "It was incredible to find out that the SEC feels like it can't police the securities industry because it doesn't have the funding or the manpower."

The fracas adds a new chapter to Kotz's contentious four-year tenure at the SEC. In recent months, current and former officials have spoken out about what they say are his overly aggressive probes and their negative impact on the agency's ability to police the markets. Earlier this month, the Justice Department declined to open an investigation into Kotz's allegations that former SEC General Counsel David Becker violated ethics laws.

Kotz and his supporters have dismissed the complaints, saying his oversight has done much to help the SEC burnish its image after it was widely attacked for missing massive frauds like Madoff's and the alleged Ponzi scheme run by R. Allen Stanford.

Commissions

In his interview with Cannella, Kotz said victims of investment schemes "deserve a strong, vibrant, effective, aggressive SEC that goes after those people, gets their money back as possible and puts them in jail."

Because he doesn't sell securities, Cannella isn't regulated by the SEC. He said he is licensed to sell insurance in over 40 states. His company puts together individual plans for clients and then earns commission on products they buy from an insurance company. He described the investments as "guaranteed, tax-deferred contractual agreements with income options from a statutory corporation."

The investments are "outside of the securities industry" and "many of them have outperformed the markets since their inception with no market risk, no market fees, no upfront commissions or sales costs," he added.

The trade magazine Senior Market Advisor in January 2008 reported that Cannella said he wrote about $25 million in premiums in 2007 for fixed index annuities. Cannella said he didn't want to put a specific name on the investments he sells because he thinks the media has misreported on the products.

"I'm not well-liked among securities guys because I am speaking truth and logic to a deceptive industry," Cannella said. "You can't beat the sword of truth."