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.