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SEC IG Can't Compel Testimony From Key Madoff Witnesses
Yesterday we noted that, based on his testimony before Congress, SEC Inspector General David Kotz appears to be conducting an aggressive investigation of the agency's failures in connection with the Bernard Madoff case.
But on one crucial point, Kotz's tetimony was much less heartening.
Questioned by lawmakers about his authority to gain access to documents and witness testimony, Kotz admitted that he didn't have the power to subpoena former SEC employees for their testimony. (We'll post the video or the relevant portion of the transcript when it becomes available.)
Here's why that matters. Three SEC enforcement staffers -- Assistant Regional Director Doria Bachenheimer, Branch Chief Meaghan Cheung, and Staff Attorney Simona Suh -- were listed on the "closing document" for the 2006-07 inquiry into Madoff, which has emerged as exhibit A in the case against the agency. According to an SEC enforcement source, only Suh, the most junior of the three, remains at the agency. (A receptionist at the agency's New York office, where all three had been based, confirmed to TPMmuckraker that Bachenheimer and Cheung no longer worked at the SEC.)
So Kotz wont have the power to compel testimony from the two SEC staffers who were perhaps the most central on-the-ground players in the agency's failure to catch Madoff. That may well limit his ability to draw broad conclusions about the SEC's slip-up, and how to avoid similar mishaps in the future.

















So... He can't subpoena them because... SEC rules prohibit it? It's outlawed by Congressional legislation setting up the SEC? What? Former public employees can't be subpoena'd even to provide testimony in a criminal case? What and who created this egregious loophole that could (and obviously can) provide a superhighway for corruption? I'm trying to research it, but maybe some more-efficient backtracking is in order here... so we can paper-trail who's responsible for this outrageous procedural flaw - and why they set it up. That these ex-employees may have sensitive proprietary knowlege is immaterial, it would seem to me, if a crime is being investigated.
January 6, 2009 12:57 PM | Reply | Permalink
What Curt said.
Clearly, this is yet another hidden fail-safe the industry was able to have put in place so that actual investigations would be stymied (I suspect we'll be hearing about a lot more of these little nuggets popping up throughout the federal government).
What’s it going to take to get this fixed?
January 6, 2009 1:24 PM | Reply | Permalink
The SEC IG could request information from the U.S. Attorney investigating Madoff, who could compel the former SEC employees to talk.
January 7, 2009 10:03 AM | Reply | Permalink
Remember those pieces that ran in TPM a bout a week ago detailing how the current SEC chair and commissioners had made it almost impossible for investigators to get a subpoena? I guess now we know they were just exercising forethought.
January 6, 2009 1:49 PM | Reply | Permalink
That doesn't mean he cannot interview them. And if subpoena'd they could claim the 5th.
January 6, 2009 5:28 PM | Reply | Permalink
Actually, eds, it does mean he can't interview them if they decline to be interviewed. And if there's an interview, it wouldn't be under oath. If I were them in similar circumstances, I'd be sure to discover a long list of previous engagements.
January 6, 2009 9:27 PM | Reply | Permalink
So... the IG's investigation is merely for "show" - something to mollify us peasants. An investigation without ability to legally coerce testimony is no investigation, at all. He'll gum it for awhile, to give the appearance something is being done. The criminal case, on the other hand, will take years to sort out. Hmmm...
January 7, 2009 3:27 PM | Reply | Permalink
Of the three SEC employees, Simona Suh should be the most useful witness because she is the one who drafted the opinion. The other two simply signed off on her recommendation. I'd be very curious to hear what Ms. Suh has to say.
January 6, 2009 9:57 PM | Reply | Permalink