WASHINGTON - Today, Congressman Paul E. Kanjorski (D-PA), the Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, sent a second letter to U.S. Securities and Exchange Commission Inspector General H. David Kotz in which he, again, strongly urges the inspector general to complete, as quickly as possible, the investigations into the failure of the Commission to detect Bernard Madoff's Ponzi scheme and to offer recommendations for improving enforcement and closing legal loopholes that became apparent as a result of the $65 billion fraud.  Chairman Kanjorski sent his initial letter to Mr. Kotz on June 15 and Mr. Kotz promptly responded to that letter just a few hours later.  While he appreciates the swift reply, Chairman Kanjorski continues to stress the need to learn about the SEC's examinations and findings on this issue by the end of July and in advance of the movement of regulatory reform legislation in Congress.

The text of Chairman Kanjorski's letter to SEC Inspector General Kotz from June 16 and SEC Inspector General Kotz's response from June 15 to Chairman Kanjorski's initial letter follow:

June 16

Dear Mr. Kotz:

Thank you for your expeditious response yesterday to my original letter regarding the progress of your investigations into the $65 billion fraud perpetrated by Mr. Bernard Madoff.

To help restore confidence in our distressed markets, the Office of Inspector General at the U.S. Securities and Exchange Commission must act quickly on these matters in order to identify why the Commission failed to detect the Madoff Ponzi scheme and to provide recommendations on how to improve the Commission's operations in the future.  In this regard, I was generally pleased to learn that you have three related investigations underway, which you presently anticipate concluding in August and September.  Nevertheless, I would encourage you to complete your examinations and release your findings sooner, if at all possible, given the importance of these matters.

Additionally, House Financial Services Committee Chairman Barney Frank has indicated that he presently hopes to move regulatory restructuring legislation before the end of July.  As you also already know, through the ongoing series of hearings of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises on these matters, I have sought to use the Madoff fraud as a case study for determining how to improve oversight of and investor protection in our securities markets.  Therefore, your recommendations for closing statutory loopholes and fixing our securities laws must come before, and not after, the House Financial Services Committee acts on a regulatory restructuring bill.  As per my initial correspondence, by June 30 please provide me with your current suggestions for modifying our federal securities laws based on your Madoff investigations and other examinations.

Moreover, the Capital Markets Subcommittee will convene additional hearings regarding the Madoff fraud in the coming months.  Among other things, we hope in the near future to examine the effect of this Ponzi scheme on individuals whose pension plans invested with Mr. Madoff's fund.  We will additionally review the need to update the Securities Investor Protection Act in light of the Madoff affair and the significant drawdown in the reserves of the Securities Investor Protection Corporation.

Because your findings will be of great interest to the Capital Markets Subcommittee and the American public, I hope that you will agree to testify once again, ideally in September.  In advance of such testimony, I would further welcome receiving more regular reports on your progress, consistent with all applicable law and regulation.  As per your response earlier today, I would also welcome receiving briefings on the findings of your reports.  At the appropriate time, please contact my staff to arrange these meetings.

In closing, I look forward to hearing from you with respect to your regulatory reform recommendations in the very near future.  I also look forward to receiving periodic updates on the status of your investigations related to the Madoff Ponzi scheme and to your forthcoming testimony before the Capital Markets Subcommittee.

Sincerely,

Paul E. Kanjorski

Chairman, Subcommittee on Capital Markets,

   Insurance, and Government Sponsored Enterprises

cc:        Ms. Mary Schapiro

Chairman, U.S. Securities and Exchange Commission

June 15

Dear Chairman Kanjorski:

Thank you for your June 15, 2009 letter regarding the above-referenced investigation that the Securities and Exchange Commission (SEC) Office of Inspector General (OIG) is currently undertaking into allegations regarding Bernard L. Madoff (Madoff) and Bernard L. Madoff Investment Securities, LLP. We appreciate your continued interest in our investigative work and in our recommendations for regulatory reform.

Let me assure you that we have been working as quickly as possible over the past several months, and I fully intend to honor the commitment I made at my January 5, 2009 testimony that the OIG would act expeditiously to issue a comprehensive report into this matter with specific recommendations in a matter of months, not years.

We plan to issue very shortly at least three reports in connection with our Madoff-related investigation. First, we plan to issue a comprehensive investigative report detailing all the examinations and investigations that the SEC conducted of Madoff or Madoff-related entities from 1992 until the present and analyze the reasons that the SEC did not uncover the Madoff Ponzi scheme notwithstanding these examinations and investigations. We have already interviewed over 100 witnesses and reviewed millions of e-mails and documents in connection with these investigative efforts. We have engaged a consulting firm with expertise in the examination of broker dealers to assist us in determining whether SEC examiners missed red flags that should have alerted them to the Madoff Ponzi scheme.

We have also retained the services of an outside expert in the areas of electronic data restoration and production to assist us in recovering electronic data, including emails, which have been deleted or corrupted from the SEC Information Technology system to ensure that we capture all available e-mails from 1992 until the present. We intend to issue this comprehensive investigate report no later than August 31, 2009.

We also plan to issue two additional reports providing specific and detailed recommendations for improvement of both the SEC's Division of Enforcement and the Office of Compliance Inspections and Examinations, which will incorporate the findings from our investigative report. We intend to issue these two reports no later than September 30, 2009.

We would also be happy to meet with you or your Committee at your convenience prior to the issuance of our reports to describe in detail the investigative work that we have completed to-date and to further provide assurances of our commitment to complete our work in an expeditious manner.

Please contact me at (202) 551-6037 if you have any questions or seek any additional information. Thank you again for your continued interest in our work.

Sincerely,

H. David Kotz

Inspector General

cc: The Honorable Mary L. Schapiro

Chairman, Securities and Exchange Commission

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