FORTUNE -- Last week the inspector general of the Securities and Exchange Commission released a 77-page report that is, in itself, an epitome of precisely what the IG is supposed to be trying to prevent: waste and abuse at the SEC.
In his latest weighty monograph, Inspector General H. David Kotz exonerated the SEC from speculations voiced by certain Republican congressmen who had accused the agency of coordinating with the White House over the timing of its civil securities fraud complaint against Goldman Sachs last April "in order to affect debate of the financial regulatory reform legislation pending before the United States Senate."
The good news is that, upon completing his inquiry, Kotz had the integrity to acknowledge that there had been no wrongdoing whatsoever. The bad news is that he had lacked the judgment to see that the whole costly, disruptive, navel-gazing extravaganza should never have been launched in the first place.
The five-month inquiry had never been based on anything more than malevolent, politically-inspired speculation. It was prompted by a letter written by U.S. Representative Darrell Issa, the ranking (i.e., Republican) member of the House Committee on Oversight and Government Reform. He and eight other (exclusively Republican) representatives had originally written SEC Chairman Mary Schapiro a letter propounding their gut feeling that the timing of the Goldman complaint had been suspicious. Both the White House and Schapiro quickly responded that there had been no such coordination of any kind.
But Issa wasn't satisfied, and asked Kotz to launch a full-fledged inquiry. Beyond the congressmen's defamatory hunch, was there ever a speck of evidence justifying reasonable suspicion? Issa's letters to Schapiro and Kotz contained only one factual allegation that could fairly be called suspicious-though it was off-point and piddling. The letters alleged that the first New York Times report about the SEC's Goldman complaint bore a time stamp indicating that it had come out a few minutes before the SEC's press release announcing the suit's filing.
As it happened, the congressmen were wrong, Kotz ultimately concluded. The time stamp actually showed that the article had come out after the press release was filed. But let's suppose for the sake of argument that some scofflaw SEC public affairs person really had leaked the press release a few minutes early. How would that justify an inquiry into whether White House officials had coordinated with SEC officials about the "timing" of the filing of the Goldman Sachs (GS, Fortune 500) complaint?
3.4 million emails
Beats me, but it was enough for Kotz, a former inspector general at the Peace Corps who was promoted to become the SEC's IG in December 2007 by then SEC chairman Christopher Cox. Kotz quickly agreed to carry Rep. Issa's water. He unveiled his probe on April 23, producing headlines that, for the next several months, fooled the public into thinking that there really must be some sort of substantial evidence of shenanigans. (Kotz did not respond to an email and phone call seeing comment.)
Next, Kotz's office "obtained and searched over 3.4 million emails," Kotz proudly reports. These belonged to "64 current and former SEC employees," including "11 employees of the Office of the Chairman, 17 employees of the Offices of the Commissioners, 14 Headquarters Division of Enforcement employees," and on it goes. And remember, this was all going on while the SEC was still trying to conduct its ongoing investigation of Goldman -- the highest profile case on its docket.
Kotz then "personally" led the questioning of 32 SEC witnesses under oath, he boasts in his report. The witnesses included all five SEC commissioners; enforcement director Robert Khuzami; deputy enforcement director Lorin Reisner; and a couple dozen other high-level agency attorneys and professionals, all of whom were yanked away from their duties and responsibilities to submit to Representative Issa's fishing expedition.
Alas, it was all in vain. There wasn't, and never had been, anything to back up the congressman's charges. Zero. Kotz found "no evidence that anyone at the SEC ever mentioned the financial reform legislation in connection with the Goldman investigation." Moreover, "no information about the SEC's investigation of Goldman was shared with any outside entities or individuals prior to the SEC's April 16 action." Kotz concluded: "The OIG has not found evidence indicating that the SEC coordinated its investigation of . . . Goldman with the Executive Office of the President, the White House, any White House employees, any Member of Congress, any Congressional employee, the Democratic National Committee, the Democratic Senate Campaign Committee, the Democratic Congressional Campaign Committee, or any of their employees."
This astoundingly silly and wasteful investigation has an important contextual backdrop. As an agency, the SEC is now struggling to demonstrate to both the public and to its own demoralized staff that after overlooking the largest Ponzi scheme in history and getting blindsided by the worst financial crisis since the Depression, the agency has reconstituted itself as a vigilant, revitalized, meaningful cop on the Wall Street beat.
It is painfully obvious that what the SEC has suffered from in recent years is excessive timidity-not aggressiveness. Its staff attorneys have exhibited too much fear of acting; too much fear of being second-guessed and criticized and called to account by too many layers of bureaucratic overseers. Staffers need to know that if they dare to challenge a powerful target (a Bernie Madoff, say, or a Goldman Sachs), that the agency will back them up-not treat them like criminals, reading their emails, listening to tapes of closed meetings, soliciting informants, and second-guessing their decisions, all in an effort to chase down politically-motivated figments of a congressman's imagination.