When asked if Cellupica will work on or direct best-interest sales practice rule making for brokers -- since his division is charged with rule making and his former employers have lobbied vigorously against such rules, the SEC spokesman told Financial Advisor magazine that “There’s a government-wide statute prohibiting conflicts of interest, which you seem to be inferring.” The SEC spokesman referred us in an email to the U.S. Office of Government Ethics rules and the criminal conflict of interest statute, 18 U.S.C. § 208, which “prohibits an employee from participating personally and substantially, in an official capacity, in any "particular matter" that would have a direct and predictable effect on the employee's own financial interests.”

“If an employee concludes that participation in such a matter would cause a reasonable person to question the employee's impartiality, the employee should not work on the matter pending possible authorization from the appropriate agency official. Moreover, disqualification is often the appropriate way to prevent a conflict of interest in the long term, unless an ‘exemption’ applies or the circumstances warrant use of other means of resolving conflicts of interest,” the US Office of Government Ethics Rules state.

 “Mr. Cellupica is coming straight from the line of fire to the SEC,” Lambert said. “We will continue to be concerned for investors who can’t afford to lose money. The SEC is already prosecuting fewer cases this year than it did last year. It is important that we have qualified and unconflicted people in leadership positions at the SEC to ensure that it fulfills its mission of protecting investors, while maintaining fair, orderly and efficient markets and facilitating capital formation.

“We plan to continue to be vigorous when it comes to pointing out regulators’ conflicts of interest that could result in investors losing what protections they do have,” Lambert added.

PIABA’s criticism of the SEC’s hiring of Cellupica comes on the heels of a new report from the group that found that six of 13 board of governor members at the Financial Industry Regulatory Authority appear to have significant industry ties and conflicts of interests like industry employment, significant investment holdings and terms that have extended long beyond Finra’s two-term, six-year limit.

“Red-flag examples of Finra’s so-called public board members include Finra Chairman William H. Heyman, who is chief investment officer of Traveler’s Companies; Eileen Murray, the co-CEO of the world’s largest hedge fund; Shelley Lazarus, an executive of the powerful Blackstone Group; and Carol Anthony Davidson, a Legg Mason board member who owns $500,000 in Legg Mason stock,” PIABA said in its report, “FINRA Governance Review: Public Governors Should Protect the Public Interest,” the PIABA report is available online at http://bit.ly/2zYVWug.

Finra’s by-laws state that its public governors may have no “material business relationship” with a broker or dealer. However, there is almost no oversight of Finra by the Securities and Exchange Commission (SEC), no Capitol Hill appointment process, and very little information provided to the investing public, “ said PIABA President and report co-author Andrew Stoltmann, an attorney at Stoltmann Law Offices, Chicago, Ill.

 “Finra’s Code of Ethics states that Finra ‘serves as a protector of investors and guardian of market integrity.’ Unfortunately, Finra’s Board of Governors, has public board members who have very deep ties to the securities industry thereby putting them in a potential conflict-of-interest situation with no oversight,” Stoltmann said.

A Finra spokeswoman responded in a statement that the organization has been considering Board transparency since putting out a notice in March.