Change urged so SEC can spot next Madoff
WASHINGTON - The watchdog of the Securities and Exchange Commission has recommended a new system for handling the thousands of tips and complaints the agency receives and other changes to prevent another breakdown like the one that allowed Bernard Madoff’s massive fraud to go undetected for 16 years.
The proposals, from SEC Inspector General David Kotz, regarding the agency’s enforcement and inspection operations also call for making it easier for junior-level enforcement attorneys to bring their concerns to top managers.
The SEC receives an estimated 700,000 tips and outside complaints a year. Kotz recommended that the SEC:
■ Establish formal guidance for evaluating various types of complaints and train staff on using the new guidelines.
■ Require tips and complaints to be reviewed by at least two people familiar with the subject matter before deciding not to take further action.
■ Assign investigations to teams with at least one member who has specific knowledge of Ponzi schemes. In Ponzi schemes, new investors’ money is used to pay earlier investors, creating a high rate of return that cannot be sustained.
■ Require planning memos to be prepared during investigations that include details of what type of expertise is needed from other people not involved in the investigation, both inside and outside of the SEC.
Kotz’s earlier review found that enforcement attorneys and investigators assigned to probe Madoff’s operation were inexperienced and their work was not adequately supervised.
