The investigation into federal regulators' complicity in -- or failure to detect -- the Bernard Madoff ponzi scheme could get a lot bigger, the lead investigator told members of Congress Monday.
H. David Kotz, the Inspector General of the Securities and Exchange Commission, was called before the House Financial Services Committee to brief lawmakers on the preliminary stages of the investigation that began shortly after Madoff confessed that he had been stealing investors' money and lying about the value of their accounts.
The hearing began with a debate between the parties as to whether the hearing was in fact a hearing. The highest ranking committee Republican, Spencer Bachus of Alabama, argued that because the 110th Congress had adjourned and the 111th has yet to officially be sworn in, the House Financial Services Committee "does not technically exist" but is rather in a "parliamentary gray area." Committee chairman Barney Frank (D-Mass.) countered that hearings rarely, if ever, count for anything official anyway, so it didn't matter what label was given to the meeting of the lawmakers.
The initial probe, Kotz told the committee in prepared testimony, sparked concerns that the failure of the SEC to detect Madoff's fraud may have been more rooted in a fundamental problem with agency regulatory practices rather than a case of sloppy work or coziness between the Madoff family and regulators.
That doesn't mean he's ruling sloppiness out entirely. Kotz said he will investigate whether the SEC broke its own rules "by not conducting timely reviews or examinations of Bernard Madoff's activities and filings."
Broadening the scope of the investigation could delay the report, Kotz acknowledged. "For this reason," he testified, "I am mobilizing additional resources to ensure that our office makes every possible effort to conclude our investigations and reviews as soon as possible."
Sensing the public need for a prompt conclusion of the inquiry, he said that he would consider releasing completed portions of the investigation on a "rolling basis."
Democrats appeared receptive to Kotz's push for a broader investigation. "Together, I hope that we can learn from this terrible event, figure out how we can improve our regulator structure, and undertake the most substantial rewrite of the laws governing the U.S. financial markets since the Great Depression," said Rep. Paul Kanjorski (D-Penn.), chairing the hearing.
House Republicans, however, were unenthusiastic about the call for a broader investigation, which could lead to tighter regulation of Wall Street. Rep. Bachus (R-Ala.) said in a prepared statement that he saw no need for "broad new legislative or regulatory mandates on the rest of the securities industry. What we may have in the Madoff case is not necessarily a lack of enforcement and oversight tools, but a failure to use them."