Let’s try to quickly catch up on the back and forth that has gone on since yesterday between House Financial Services Capital Markets Subcommittee Chairman Paul Kanjorski and SEC Inspector General H. David Kotz.  Yesterday, Kanjorski announced that he sent a letter to Kotz calling for an update by the end of this month on his internal investigation into why and how the SEC failed to detect the Madoff scandal.

Kotz began his investigation into the matter in December 2008 at the request of then-Chairman Christopher Cox, and he stated at that time that he planned to break the investigation into discrete pieces and issue reports on these pieces on a rolling basis (rather than holding all of his findings until the end and issuing one massive report).

In his letter, Kanjorski wrote that while Kotz previously acknowledged that it was critical for his investigation to be conducted expeditiously, “[s]ix months have now passed since you began your investigations into the $65 billion Madoff Ponzi scheme. In addition, more than five months have ensued since you testified and made public commitments regarding these matters.”  To date, Kanjorski observed, the only update Kotz has offered on the Madoff investigation is a “one-page summary” in Kotz’s recent semi-annual report to Congress (discussed here).  Kanjorski stated that this summary was “an inadequate response to my earlier requests and your prior public commitments.  The time has come for you to act.”  Kanjorksi asked for an update on the investigation no later than June 30.

Kotz responded the same day in a letter to Kanjorski, stating that he plans to release at least three reports over the coming months.  First, Kotz said, he will release a comprehensive investigative report no later than August 31 detailing all the examinations and investigations that the SEC has conducted on Bernard L. Madoff Securities LLC of New York from 1992 until the present.

In addition, based on the findings of the investigative report, the IG’s office will issue two more reports providing specific recommendations for improving the SEC’s Division of Enforcement and its Office of Compliance Inspections and Examinations (OCIE) no later than Sept. 30. Kotz added that “[w]e have been working as quickly as possible over the past several months.”

This response did not quite satisfy Kanjorski, however.  Today he shot off another letter to Kotz, saying that late August was too late because House Financial Services Committee Chairman Barney Frank has indicated that he plans to move regulatory restructuring legislation before the end of July, and Kanjorski wishes to “use the Madoff fraud as a case study for determining how to improve oversight of and investor protection in our securities markets.” Kotz’s recommendations, Kanjorski said, must therefore 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.