Keynote interview – Working with the SEC

These are my notes from the “Keynote interview – Working with the SEC” session at the Private Fund Compliance Forum 2012.

H. David Kotz, former Inspector General, Office of the Inspector General, United States Securities and Exchange Commission (2007-2012), currently Managing Director, Gryphon Strategies, interviewed by Lois Towers, Principal, Pantheon Ventures

Discussed the Madoff debacle at the SEC. His take was a failure of competence, but Madoff played different examiners in different offices against each other. He does think the SEC has learned its lessons from the failure.

As a result of Madoff, examiners are a bit nervous about failing to catch a bad guy. They take longer to close out cases and issue more deficiency letters.

He recognized that the SEC is in a political vice grip. The Democrats pushed more responsibilities on the SEC under Dodd-Frank. The Republicans failed to give the SEC any budget to tackle the additional responsibilities.

Kotz stated that there are varying levels of competency in the SEC. There are some tremendous, smart, hard-working individuals. But it’s hard for the SEC to weed out under-performing employees.

Kotz gave lots of credit to Carlo di Florio and his new approach to examination. He is concerned that it will take lots of time to move a big bureaucracy like the SEC.

He thinks that examiners get rewarded for finding stuff in exams. Lots of no deficiency letters is an indication that the examiner is just missing the issues, not that there is a lack of issues.

His view was clearly a cynical view of the SEC. He admitted as much.

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