WASHINGTON (Bloomberg) — The US Securities and Exchange Commission, criticized by Congress for its handling of a trading probe that entangled Morgan Stanley chief executive officer John Mack, faces a broad review by government auditors of its management and methods for policing the financial markets.The Government Accountability Office agreed last week to investigate the SEC’s enforcement division and compliance department after requests by Senator Charles Grassley, an Iowa Republican who questioned whether the agency gave Mack special treatment.

Grassley asked the GAO to examine the SEC’s “planning, oversight, control and other management processes” and gauge whether the agency does enough to oversee regulators at the New York Stock Exchange and NASD.

“Based upon allegations I have received over the past few months, I have become increasingly concerned regarding the operations of the SEC, and whether the SEC is faithfully adhering to its mission” to protect investors, Grassley, the chairman of the Senate Finance Committee, wrote in one of two September 19 letters to GAO Comptroller General David Walker.

The review ratchets up the heaviest political pressure the SEC has faced since Christopher Cox, a California Republican, took over as its chairman in August 2005. Grassley’s requests target units run by SEC enforcement chief Linda Thomsen and Lori Richards, head of the Office of Compliance, Inspections and Examinations.

“The GAO has been given a wide-ranging licence to investigate here, and they’ll certainly work very hard to justify the time they spend on it,” said Mark Radke, a former SEC lawyer who’s a partner at LeBoeuf, Lamb, Greene & MacRae LLP in Washington. “From the perspective of people running the agency, when the GAO comes in to do one of these things, it’s inevitably a drain on scarce resources.”

Senators including Grassley are concerned that the SEC shielded Mack from a probe of insider trading at Pequot Capital Management Inc., which runs $7 billion in hedge funds. Gary Aguirre, a former SEC investigator, told the Senate Judiciary Committee in June that he was blocked from questioning Mack because of the Morgan Stanley CEO’s political clout.