Gryphon Blog

David Kotz, after serving as Inspector General of the SEC for the last four years, recently joined Gryphon Strategies as Managing Director and head of our new Washington DC office. 

Below is the next installment of Mr. Kotz’ experience at the SEC. 

Pulling it All Together and Compiling the 457-page Madoff report

During the summer of 2009, the Madoff investigative team in the SEC Office of the Inspector General continued to work through weekends and without vacations to conclude the investigation.  We were stunned when we realized how many opportunities the SEC actually had to uncover Madoff’s Ponzi scheme.

In July, we had completed the investigative work and were set to draft the report of investigation.  Initially, we discussed preparing a summary of our findings, without all the specific details, so that it would be easier to produce.  I decided that given all the public interest and the many outstanding rumors – all of which turned out to be false — about Bernie Madoff paying-off SEC employees and even certain members of Congress, it was necessary to include all the details in the report to reassure the public that corruption wasn’t a factor in missing the Ponzi scheme.  We divided up the sections of the report among the team and set deadlines for drafts to be prepared.  I realized that some members of the investigative team were stronger researchers and some better writers and tried to use each individual’s strengths to the betterment of the project.  I also ended up drafting several sections myself and edited the entire report so that it would be a consistent work product.

We then meticulously assembled more than 500 exhibits that we planned to attach to the report.  Our work continued late into the night and throughout the weekends for the entire month of August.

Finally, on August 31, 2009, we had completed the report, finalized the exhibits and put it all together.  We were about to have the report copied and bound for issuance when I decided to read it over one more time, much to my staff’s chagrin.  I realized we had spelled Chairman Mary Schapiro’s name wrong and the report had to be revised for the final time.  Later that day, we issued the report within the deadline I had promised Congress months earlier.

When we issued the report and it was released publicly, we received very positive feedback from both inside and outside the Agency.  The SEC’s General Counsel personally sought me out to let me know how well done he thought the report was.  I also received many telephone calls from Capitol Hill staffers congratulating me on the report on behalf of Senators and Congressman.   Because of the intense Congressional and media attention, the SEC released the 22-page executive summary a few days before it released the entire report.  Both the executive summary and full report received a tremendous amount of press coverage even though the full report was not released by the SEC until the Friday afternoon before Labor Day.  The report was referred to as “exhaustive,” “comprehensive” and “thorough” in the media.

I am most proud of the fact that with all the conspiracy theories and rumors about the SEC’s interactions with Madoff that existed before we conducted our investigation, after our report was issued, there was a general consensus that we had uncovered a firm accounting of the truth, and that our report was an accepted accounting of the Madoff saga.

David Kotz, after serving as Inspector General of the SEC for the last four years, recently joined Gryphon Strategies as Managing Director and head of our new Washington DC office. 

Below is the next installment of Mr. Kotz’ experience at the SEC. 

Investigating Madoff: Pressure from Inside and Outside the SEC

The Madoff investigation boiled down to timing.  My staff and I had to work within a firm deadline that I set at Congress’ behest in order to help them craft financial reform legislation.  We also, though, had to address SEC officials who worried that our report, if rushed on a deadline, would not be thorough and conclusive in its review of the evidence.

But both Congress and the agency had a common goal: making sure a Madoff fiasco never happened again. That common interest helped me greatly in my investigative efforts.

In June 2009, approximately 6 months after we began the investigation, I received a letter from Congressman Paul Kanjorski (D-Pa), who was serving as Chairman of the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, asking for my full report to which I replied that I would issue it by the end of August.  I explained that the SEC had conducted numerous examinations and investigations of Madoff going back to 1992, which all needed to be explored in full detail, to uncover why the Ponzi scheme was missed.

Two days later, I received another letter from Congressman Kanjorski, thanking me for my expeditious response to his first letter, and asking me if I could at least give Congress suggestions for modifying the securities laws based upon my findings, by the end of June.   Congressman Kanjorski also wrote in his second letter to me that I needed to act quickly, “to help restore confidence in our distressed markets.”

That became a matter of urgent priority for my team, and we were able to provide Congress with timely suggestions gleaned from our ongoing investigation on which to base certain aspects of the financial reform legislation.

Meanwhile, inside the SEC, certain agency officials expressed consternation that we were moving too fast and that it would not be possible to complete the investigation by the end of August along with a thorough report. After all, we were still having trouble obtaining all the old e-mails and were having some difficulty scheduling interviews with several pivotal former SEC employees.

My staff also felt pressure imposed by my end of August deadline, worried that they would not be able to complete their investigative work in time. I scheduled a Madoff team meeting and informed my staff that we would finish the investigation when all the necessary work had been done, and that they should not worry about the deadlines.  I also explained that if the report was not completed by the end of August, I would take sole responsibility for missing the deadline.  This message took some pressure off and we continued in our efforts.

Next: Putting it All Together and Compiling the 457-page Madoff Report