The internal watchdog at the Securities and Exchange Commission is recommending dozens of reforms at the agency following its failure to detect the Madoff Ponzi scheme.
SEC Inspector General H. David Kotz issued two reports Tuesday. One is aimed at the SEC's Division of Enforcement, the other at the Office of Compliance Investigations and Audits—known as OCIE. The reports can be viewed here.
"What we wanted to do in our reccomendation report is really to go in the weeds and specify procedures to ensure that the SEC conducts appropriate thourough, comprehensive investigations and examinations," Kotz told CNBC.
The recommendations—21 for the Division of Enforcement and 37 for OCIE—come one month after Kotz issued a scathing, 500-page report on the SEC's multiple failure in the Madoff case, some dating back a decade.
The reports note that the staff of both divisions generally concur with the recommendations. An SEC spokesman declined further comment.
Many of the recommendations are basic. In the report on the Enforcement Division, for example, Kotz recommends procedures "to ensure that investigations are assigned to teams where at least one individual on the team has specific knowledge of the subject matter (e.g. Ponzi schemes)."
Kotz had found that various investigations of Madoff—there were at least half a dozen over the years—were hampered by the lack of experience among some of the investigators.
Several recommendations in the OCIE report address the failure of examiners to verify statements by Madoff and his counterparties. And the report recommends that examiners be trained on the mechanics of settling trades.
Kotz has given the divisions 45 days to respond with specific plans for reforms.