I recently wrote of the S.E.C.’s abysmal failures in not detecting Bernard L. Madoff’s billion dollar Ponzi scheme. (See “Bernard Madoff: An Epilogue, Parts I and II”). H. David Kotz, the S.E.C.’s inspector general has now issued two reports in which he recommends dozens of changes in the way the agency evaluates tips, trains investigators and documents examinations of securities firms.
The first report, pertaining to the S.E.C’s inspections and examinations
office, recommends 37 improvements that would effectively overhaul nearly
every aspect of the division’s operations. The recommendations include
the manner in which investigators follow up on tips and the creation of
step-by-step procedures in identifying potential securities laws violations.
The inspector general also issued 21 recommendations to the S.E.C.’s
division of enforcement, including a formal process for handling complaints
and improving the working relationships within the division. One recommendation
would mandate that tips and complaints be reviewed by at least two persons
with experience in the subject area before taking further action.
The S.E.C. has been directed to establish formal procedures regarding
the scope and planning of examinations and the selection of staff members
for specific investigations. Mr. Kotz ordered the two S.E.C. divisions
to submit a written plan within 45 days detailing how they would apply
A re-reading of my previous blogs on this subject is recommended in order
to give context to the ills addressed by the inspector general.