David Kotz | |
---|---|
Inspector General for the Securities and Exchange Commission | |
In office December 5, 2007 –January 30, 2012 | |
President | George W. Bush Barack Obama |
Preceded by | Nelson Egbert (Acting) |
Succeeded by | Noelle Maloney (Acting) |
Inspector General of the Peace Corps | |
In office January 6,2006 –December 5,2007 | |
President | George W. Bush |
Preceded by | Charles Smith |
Succeeded by | Kathy Buller |
Personal details | |
Born | Harold David Kotz June 24,1966 Toronto,Canada |
Education | University of Maryland,College Park (BA) Cornell University (JD) |
H. David Kotz, [1] [2] also known as Harold David Kotz (born June 24,1966),is a managing director at Berkeley Research Group. [1] [2] While Inspector General at the U.S. Securities and Exchange Commission (SEC),Kotz investigated why the SEC failed to detect the $19 billion Madoff fraud.
Kotz was a litigation associate at three law firms from 1990–99,and then a labor attorney at the U.S. Agency for International Development from 1999–2002. He worked at the Peace Corps as a lawyer handling labor and violent crime matters,as well as Inspector General,from 2002–07.
He then was Inspector General at the U.S. Securities and Exchange Commission (SEC) from December 2007 until his resignation in January 2012. [3] [4] [5] [6] At the SEC,his department conducted investigations about improprieties,conflicts of interest,and the SEC's failure to uncover Ponzi schemes. He referred 30 cases to the Justice Department;2 were prosecuted,leading to 1 conviction. In 2012,an independent review of his conduct by the Inspector General of the U.S. Postal Service concluded that Kotz violated conflict of interest rules by conducting investigations on persons with whom he had a personal relationship. [7] [8]
One conflict involved Kotz accepting three tickets to a football game at a subsidized cost from a financial adviser. [9]
Kotz graduated cum laude from the University of Maryland,College Park in 1987,with a B.A. in government and politics,and earned his J.D. at Cornell Law School in 1990. [10]
In his early career,Kotz worked as a litigation associate at three law firms,working on commercial litigation,discrimination,personal injury,and sexual harassment matters:Graham &James (1990–92) and Stults &Balber (1992–94) in New York City,and Pepper Hamilton LLP (1994–99) in Washington,DC. [11] [12] [13] [14]
Kotz worked at the US Agency for International Development (USAID) from 1999–2002,where he was an Attorney Advisor in the Office of the General Counsel and later a Chief in the Office of Labor and Employee Relations. [10] [14] [15]
Kotz joined the Peace Corps in 2002,and worked there until 2007,during which time he handled labor arbitrations,employee grievances,and prosecutions of rapes,sexual assaults,and other violent crimes against volunteers. [13] [15] For three years,he was an Associate General Counsel. [10] Starting in 2006,he worked for the Peace Corps as Inspector General. [10]
In December 2007,Kotz next became the Inspector General at the Securities and Exchange Commission (SEC),following the resignation of his predecessor,Walter Stachnik. [6] [16] He was tasked with conducting independent objective audits of SEC procedures and practices promote economy,effectiveness,and efficiency. His reports touched on the SEC not uncovering the Madoff Ponzi scheme and the SEC's office-leasing program after the Dodd-Frank financial overhaul. [10] [17]
Kotz's tenure at the SEC was contentious and controversial,marked by critical investigations,charges that some of his investigations lacked evidence of wrongdoing and distorted facts to build a case,criticisms of him for conflicts of interest and ethics violations,and a determination that he had an inappropriate relationship with an SEC employee. [18] [19] According to his reports,he referred about 30 cases to the Justice Department,of which 2 were prosecuted,leading to 1 conviction,as of September 2011. [20] Mary Schapiro,Chairman of the SEC,in her announcement of his departure from the SEC praised Kotz as a "committed public servant who has served the agency with great distinction." [17] [18] [21]
Kotz investigated why the SEC failed to detect the $19 billion Madoff fraud. [6] Madoff pleaded guilty to fraud and was serving a 150-year federal prison sentence when he died there in 2021 at age 82. [22] He also investigated the responses by the SEC to written complaints about Madoff since 1992. [22] In September 2009,Kotz issued a 477-page report that described numerous failures on the part of the SEC in failing to uncover Madoff's Ponzi scheme,despite three examinations and two investigations. [6] [22] [23] [24] Kotz followed that up with extensive recommendations for improvements to SEC procedures and training. [25] Speaking of the Madoff victims,Kotz observed:"People's lives are destroyed,but they can find some solace in knowing there was change as a result." [26]
Kotz's investigation found that the SEC received more than ample information in the form of detailed and substantive complaints over the years. The OIG found that between June 1992 and December 2008 when Madoff confessed,the SEC received six substantive complaints that raised significant red flags concerning Madoff's hedge fund operations and should have led to questions about whether Madoff was actually engaged in trading. [27]
One of his findings in his Madoff-related investigations was that the SEC's General Counsel,David M. Becker,had a conflict of interest,as his family had invested $2 million with Madoff. [28] Kotz referred the matter to the U.S. Justice Department's criminal division. [28] Becker's lawyer said that SEC officials knew about the investments,and did not recommend that he recuse himself. [28] [29] Becker said:
I have seen Inspector General Kotz do this before,make a big fuss... about sending reports to the Justice Department. Nothing has happened in any of them,and some of them ... from my time at the SEC were laughable. [29]
The Justice Department declined to pursue the matter. [30] [31]
He also investigated whether the romantic relationship between Eric Swanson,the SEC Assistant Director of the Office of Compliance Inspections and Examinations,and Bernie Madoff's niece and in-house compliance attorney Shana Madoff,whom Swanson met in 2003 while he was investigating her uncle Bernie and his firm for running a Ponzi scheme,influenced the SEC's closing of the Madoff investigation. Swanson left the SEC in 2006,became engaged to Shana Madoff three months later,and married her in 2007. Kotz concluded that there was no evidence that their relationship influenced the SEC's closing of the inquiry. [32] [33]
Financial analyst and whistleblower Harry Markopolos said that Kotz "was unflagging [and h]e restored my faith," in the Madoff affair. [34]
In March 2010,Kotz issued another report finding the SEC also failed to uncover a $7 billion Ponzi scheme perpetrated by Allen Stanford. [19] Kotz found that the SEC had suspected since 1997 that Stanford was running a Ponzi scheme,but did not order a formal investigation until 2005. [35] Kotz accused SEC attorney Spencer Barasch of having a conflict of interest,in that he participated in decisions not to investigate Stanford when he was head of enforcement in an SEC regional office,and then briefly representing Stanford before the SEC after leaving the SEC. [36] [37] In 2012,Barasch agreed to pay a $50,000 fine to settle a Justice Department conflict of interest claim. He stated he did not think he was guilty,but settled to avoid a lengthy court battle. [36] [37]
A subsequent 66-page report on Kotz's behavior by Inspector General David C. Williams of the U.S. Postal Service found that Kotz himself "appeared to have a conflict of interest" and shouldn’t have opened the investigation,because one of the lawyers involved was a personal friend of his. [19]
Kotz investigated a controversy reported by a former SEC lawyer who claimed he was fired in order to thwart his investigation of insider trading at Pequot Capital Management. Kotz recommended that disciplinary action be commenced against Linda Chatman Thomsen,the Director of the Division of Enforcement for the SEC. [38] His recommendation was not accepted,and no disciplinary action was taken. [6]
Kotz's investigations in 2010 and 2011 revealed that employees of the SEC had been using their work computers to access pornography sites during business hours. [21] [39] [40] [41] He released two reports documenting his findings. [39] [40]
In 2011,Kotz issued a report criticizing the SEC for its 900,000-square-foot,$557 million,10-year lease for new office space. [42] [43] [44]
At least two formal complaints were filed against Kotz by SEC staff members (including Linda Baier,acting Branch Chief of Acquisition Policy,and Nancy McGinley,an enforcement attorney,in April 2011),with the Council of Inspectors General on Integrity and Efficiency (CIGIE). [45] [46] [47] They alleged that Kotz distorted facts to build a case,and that he created a culture of fear at the SEC of Kotz's "false allegations and retaliations". [45] [46] Kotz sought to have Baier disciplined,but her managers declined to take action. [45] Kotz similarly sent a criminal referral to federal prosecutors regarding trading by McGinley,but the Justice Department declined to act. [45] Kotz denied the allegations,but ultimately left the SEC in the midst of a scandal concerning ethics and potential conflicts of interest. [45] [46] The allegations,which Kotz denied,were eventually dismissed. [45] [46] [48]
Another complainant against Kotz was the office's former Chief of Investigations,David Weber,who accused Kotz of improper conduct in the Madoff investigation. [3] [7] In November 2012,after he was terminated by the SEC,Weber filed a federal lawsuit alleging that the Madoff and Stanford cases might have been compromised by Kotz's personal relationships with some of the people involved. [49] [50] An independent,outside review of Weber's charges by Inspector General David C. Williams of the U.S. Postal Service found that Kotz may have had conflicts of interest in several investigations due to having a personal relationship with the people being investigated. [51] Kotz responded to the civil lawsuit saying that:"for some inexplicable reason,my name has been dragged through the mud in the most ludicrous and unbelievable allegations," saying that Weber was hired for a position a couple of weeks prior to Kotz' departure from the SEC,that Kotz barely interacted with him,and did not know anything about why Weber was placed on leave and eventually terminated or about Weber's allegations of retaliation. [3] [49] [52] [53] The SEC settled with Weber for $580,000,one of the highest SEC settlements in a whistleblower retaliation case,in May 2013. [54] [55]
Because of concerns of improper conduct by Kotz,Inspector General David C. Williams of the U.S. Postal Service was brought in to conduct an independent,outside review of Kotz's alleged improper conduct. [7] Williams concluded in his Report that Kotz violated conflict of interest rules by conducting investigations on persons with whom he had a personal relationship. [7] [8] [56] He also concluded that Kotz may have had an inappropriate relationship with an SEC employee. [7] [53] [56] [57]
One conflict of interest for which Kotz was criticized was his decision to buy three box-seat tickets to a Philadelphia Eagles football game from a financial adviser who had interviewed him for a radio program. [7] [8] [49] [58] Kotz paid $95 each for the tickets (less than half their actual value). [8] Commenting on the matter,Professor Geoffrey Hazard,a legal ethics specialist,said that "However passionate a fan you might be of the Eagles,it's just imprudent" to take the tickets. [58] Kotz called the incident:"an insignificant matter," saying that he paid face value for the tickets and got approval from the ethics office before he made the purchase. [49] [53]
The Report questioned Kotz's work on the Madoff investigation,because Kotz was friends with Harry Markopolos,who reported the case to the SEC. [8] [57] Investigators were unable to determine when the friendship began,and thus could not determine conclusively whether or not ethics rules had been violated. [8] [52]
The Report also found that Kotz should not have participated in a probe of the re-organization of the SEC’s office,because he engaged in “extensive”and “flirtatious”communications with a female SEC staffer associated with the project during the probe. [8] Among other things,he emailed her in 2008 a suggestion that she buy a "short skirt or two," and as to the dress code he indicated that she would qualify for a “Special exemption for after work get togethers.” [8] Kotz stated he didn't think he had said anything inappropriate,and denied having a personal relationship with the woman. [8] [53]
Senator Charles Grassley (R-Iowa) said in a statement that the Report revealed "poor judgment". [8]
On January 17,2012,Kotz resigned amid criticisms of his behavior and questions about his conduct,and the SEC announced that he would leave the agency at the end of January. [3] [8] [17] Kotz announced that he was leaving the SEC,describing the reports he had issued as being "significant to the agency,Congress and the investing public". [59]
Senator Grassley,an Iowa Republican who was a frequent critic of the SEC,said:"David Kotz produced strong,conclusive reports,even as critics claimed he was too aggressive. An aggressive,independent inspector general is best for the agency in the long run,even if that's uncomfortable for management." [21] [60]
In late January 2012,Kotz joined Gryphon Strategies,a small New York corporate fraud investigation firm,as its Washington representative and managing director. [61] [62]
In August 2012,Kotz joined the anti-corruption team as a director in the Financial Institutions practice at Berkeley Research Group. [63] Kotz had become familiar with Berkeley when he hired the firm while he was at the SEC,during the Madoff investigation. [61]
In 2013,at Berkeley Research Group,Kotz issued a report commissioned by the National Futures Association regarding a $215 million fraud perpetrated by Russell Wasendorf,as CEO of Peregrine Financial Group. The report found regulators missed warning signs as far back as 1994 and multiple opportunities to catch the fraud. [64]
Kotz's wife Deborah is a reporter for the Boston Globe . [65] The couple has three children. [65]
The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government,created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market manipulation.
In politics,regulatory capture is a form of corruption of authority that occurs when a political entity,policymaker,or regulator is co-opted to serve the commercial,ideological,or political interests of a minor constituency,such as a particular geographic area,industry,profession,or ideological group.
Robert Allen Stanford is a convicted financial fraudster,former financier,and sponsor of professional sports. He was convicted of fraud in 2012,having operated an eight billion dollar Ponzi scheme,and is now serving a 110-year federal prison sentence.
Linda Chatman Thomsen is an American attorney who was director of the Division of Enforcement for the U.S. Securities and Exchange Commission from 2005 until early 2009. Since arriving at the SEC in 1995,she worked under four SEC Chairmen:Arthur Levitt,Harvey Pitt,William H. Donaldson,and Christopher Cox. William Donaldson named her director of the Division of Enforcement on May 12,2005. She is the first woman to serve as director of the Division of Enforcement. Thomsen is known for her role in the suits by the SEC against Enron and Martha Stewart,and for not having investigated Bernard Madoff. She succeeded Stephen M. Cutler. As of 2016,she has been a senior counsel at Davis Polk &Wardwell.
Bernard Lawrence Madoff was an American financial criminal and financier who was the admitted mastermind of the largest known Ponzi scheme in history,worth an estimated $65 billion. He was at one time chairman of the Nasdaq stock exchange. Madoff's firm had two basic units:a stock brokerage and an asset management business;the Ponzi scheme was centered in the asset management business.
Harry M. Markopolos is an American former securities industry executive and a forensic accounting and financial fraud investigator.
David G. Friehling is an American accountant who was arrested and charged in March 2009 for his role in the Madoff investment scandal. He subsequently pleaded guilty to rubber-stamping Bernard Madoff's filings with regulators rather than fully reviewing them. His role in covering up Madoff's massive Ponzi scheme makes it the largest accounting fraud in history.
Nicholas Cosmo is an American former businessman and white-collar criminal. He was arrested January 26,2009 on charges of an estimated $370–413 million Ponzi scheme. Cosmo conducted the scheme using his company Agape World Inc. in Hauppauge,New York,which claimed to make its profits via commercial bridge lending. Authorities arrested him in Hicksville,New York.
The Madoff investment scandal was a major case of stock and securities fraud discovered in late 2008. In December of that year,Bernie Madoff,the former Nasdaq chairman and founder of the Wall Street firm Bernard L. Madoff Investment Securities LLC,admitted that the wealth management arm of his business was an elaborate multi-billion-dollar Ponzi scheme.
Participants in the Madoff investment scandal included employees of Bernard Madoff's investment firm with specific knowledge of the Ponzi scheme,a three-person accounting firm that assembled his reports,and a network of feeder funds that invested their clients' money with Madoff while collecting significant fees. Madoff avoided most direct financial scrutiny by accepting investments only through these feeder funds,while obtaining false auditing statements for his firm. The liquidation trustee of Madoff's firm has implicated managers of the feeder funds for ignoring signs of Madoff's deception.
The recovery of funds from the Madoff investment scandal has been underway since the scandal broke in December 2008. That month,recovery trustee Irving Picard received funds from the Bank of New York account where Bernard Madoff held new investments into his Ponzi scheme. As it has been concluded that no legitimate investments were made on the investors' behalf for at least the last 12 years of operation,recovery has proceeded on a "money in/money out" basis. Investors are entitled to receive no more than the nominal cash amounts that they paid in and did not subsequently withdraw,without regard to inflation,interest,opportunity cost or the false statements that Madoff provided them. Those statements combined to a total balance of approximately $64 billion,while the admitted claims amount to $19.5 billion. As of March 2024,the trustee had recovered $14.7 billion toward these claims through legal action against Madoff associates,feeder funds and beneficiaries of the scheme,and had made fifteen distributions to investors. Action by the Department of Justice has recovered an additional $4 billion.
Genevievette Walker-Lightfoot is a former U.S. Securities and Exchange Commission (SEC) attorney. She worked on the Bernard Madoff investigation in 2004,as the Lead Investigator for the SEC on the case. She discovered key elements of the Madoff Ponzi scheme and reported them to her superiors. She was moved off the case prior to being able to complete the investigation.
Robert S. Khuzami was the Deputy U.S. Attorney for the United States Attorney's Office for the Southern District of New York until March 22,2019. He previously was a United States federal prosecutor and Assistant United States Attorney for the office,and a former director of the Division of Enforcement of the U.S. Securities and Exchange Commission. He was previously a partner at law firm Kirkland &Ellis. and general counsel of Deutsche Bank AG.
A Matter Under Inquiry is a term used by the United States Securities and Exchange Commission to describe preliminary investigations it makes into alleged financial fraud in the companies that it is responsible for regulating. MUIs may lead to more serious formal investigations,or they may be closed and no further action taken.
David M. Becker is an American lawyer and a partner of Cleary Gottlieb. He was twice General Counsel and Senior Policy Director of the United States Securities and Exchange Commission (SEC)
David C. Williams was the vice chairman of the Board of Governors of the United States Postal Service from September 13,2018,to April 30,2020,and served as Inspector General (IG) for the U.S. Postal Service,in the United States Postal Service Office of Inspector General,from 2003 to 2016.
Shana Diane Madoff,sometimes referred to as Shana Madoff Skoller Swanson,is an American former attorney who is now a yoga teacher.
Eric J. Swanson is an American lawyer who worked at the U.S. Securities and Exchange Commission (SEC) and dated and eventually married the niece of Bernard Madoff while the SEC was investigating Madoff's investment firm for what was eventually revealed to be a massive Ponzi scheme. Swanson is currently the Senior Vice President,General Counsel,and Secretary of BATS Global Markets,the third-largest stock exchange in the United States.
David Paul Weber is an American criminalist,and the former Assistant Inspector General for Investigations at the U.S. Securities and Exchange Commission (SEC). He is the Principal Investigator of a $2.6 million grant by the U.S. Department of Health and Human Services,to test various white collar crime interventions concerning elder financial exploitation and high-tech crime. He is a Professor of the Practice in Fraud and Forensic Accounting at the Perdue School of Business,Salisbury University.
{{cite web}}
: CS1 maint: multiple names: authors list (link){{cite news}}
: CS1 maint: multiple names: authors list (link){{cite web}}
: CS1 maint: multiple names: authors list (link)