Yeah, when I looked at the data in the article, the pattern wasn't that SEC employees were systematically selling stocks they were investigating. Rather, it was that they were always selling, and refused to buy stocks under investigation. This is consistent with the SEC's policies, and also makes a lot of sense.
I would chalk this up to a quirk of statistics rather than any deliberate malfeasance. (Although, I'd note that the SEC policy that employees sell any stocks of a company that they will be investigating is good for the employees, because those companies are disproportionately likely to suffer a stock price penalty in the near future. Basically, the policy is a way of turning material non-public information into a market advantage without requiring that any individual employee act on that. But this situation exists in a lot of other cases, eg. stock option grants should systematically beat the market because companies that are financially healthy are more likely to hire people, and that financial health usually translates into hiring before it translates into profits.)
Do you see any conflict of interest in an employee at the SEC and buying stock in every SP500 company matching their market cap, then selling them right before the SEC investigates them? If someone did that with the SP500 they could easily beat the index. I think this is the definition of malfeasance.
I think it's the definition of "unfair advantage", but I don't think it's the definition of "malfeasance". The individual SEC employees have no agency here: they are required by policy to sell the stock of any companies they are investigating.
Moreover, it's not clear if any other policy would better serve the public interest. Requiring or allowing them to not to sell that stock is an even worse conflict of interest; it would incentivize them to never find a company guilty, because then their own holdings would drop. Requiring that they never own stocks would be a prohibitive restriction that would turn away many people who are most qualified for the job. The blind trust idea might work, but adds a lot of overhead for employees, and also requires another level of enforcement to make sure employees are not leaking information to the trustee.
A lot of people are really uncomfortable with the idea that someone might have an unfair advantage in financial markets, but oftentimes this is quite unavoidable. It's also pretty small-potatoes compared to the advantages that professional financiers get by being primary dealers for the Fed, or market makers, or having relationships with Wall Street policy makers, or hobnobbing with company CEOs on the golf course.
I would chalk this up to a quirk of statistics rather than any deliberate malfeasance. (Although, I'd note that the SEC policy that employees sell any stocks of a company that they will be investigating is good for the employees, because those companies are disproportionately likely to suffer a stock price penalty in the near future. Basically, the policy is a way of turning material non-public information into a market advantage without requiring that any individual employee act on that. But this situation exists in a lot of other cases, eg. stock option grants should systematically beat the market because companies that are financially healthy are more likely to hire people, and that financial health usually translates into hiring before it translates into profits.)