In his stunning statement last night, SEC Chairman Cox said that he had
directed a full and immediate review of the past allegations regarding Mr. Madoff and his firm and the reasons they were not found credible, to be led by the SEC’s Inspector General. The review will also cover the internal policies at the SEC governing when allegations such as those in this case should be raised to the Commission level, whether those policies were followed, and whether improvements to those policies are necessary. The investigation should also include all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by staff regarding the firm.
The SEC’s Inspector General is H. David Kotz, who was named the SEC’s new IG in December 2007. Since that time, Kotz has been incredibly busy, investigating and drafting lengthy reports in the Aguirre/Pequot matter, the W Holding/Bear Stearns matter, and others.
Kotz now takes on a new, hugely important, and high-profile investigation into why the SEC failed to pursue credible and specific allegations regarding Mr. Madoff’s financial wrongdoing going back to at least 1999.
I spoke briefly today with Mr. Kotz, and he confirmed that Chairman Cox has asked him to take on the investigation, which is now his number one priority. He says there is still uncertainty about many of the details, such as how long it will take, how many people it will take to accomplish the investigation, and whether he’ll need to bring on new people to assist his team.
Kotz said that one idea he is considering is to break the investigation into discrete pieces and issue reports on these pieces on a rolling basis (rather than holding all of his findings until the end and issuing one massive report, as he did in the Bear Stearns matter). He also emphasized that he plans to be personally very active in the investigation.