The Securities and Exchange Commission’s Inspector General H. David Kotz provided recommendations to modify federal securities laws based on the recent Madoff investigation and other examinations in a letter to Congressman Paul Kanjorski, the Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises. The letter, which was in response to Chairman Kanjorski's request for such recommendations, included the following suggestions: (i) extend the regulatory jurisdiction of the Public Company Accounting Oversight Board to audit reports prepared by domestic registered or foreign public accounting firms regarding issuers, broker-dealers, investment advisors and any companies subject to U.S. securities laws; (ii) amend the Investment Advisers Act of 1940 to require hedge funds and investment advisors to use an “independent custodian”; (iii) require certifications by all funds of hedge funds and registered investment advisors that they conducted adequate due diligence in connection with investments; and (iv) expand the SEC bounty program, which currently applies only to information leading to a recovery in an insider trading violation, to authorize the SEC to award a bounty for information leading to a civil penalty from any violator of federal securities laws.  

To view the text of the letter click here.