SEC Inspector General, Critic Of Regulator's Hedge Fund Probes, To Leave

Jan 19 2012 | 1:44am ET

H. David Kotz, the Securities and Exchange Commission's internal watchdog and a dogged critic of its handling of several hedge fund investigations and its failure to catch Bernard Madoff, is leaving the agency.

Kotz, the SEC's inspector-general since December 2007, will join private investigator Gryphon Strategies in January, the agency said. His exit follows reports that at least two SEC employees had filed formal complaints against him, alleging hardball tactics in an investigation of them, as well as a potential conflict-of-interest allegation.

Whatever his methods, Kotz made a name for himself at the SEC and on Capitol Hill, unafraid to stridently criticize the agency where he saw failings. He wrote a 477-page report detailing the SEC's dealings with arch-fraudster Bernard Madoff and its failure to detect his $65 billion Ponzi scheme.

In other reports, Kotz slammed the SEC's handling of its investigation of insider-trading at Pequot Capital Management, and most recently noted that the SEC had been forced to junk another hedge fund insider-trading case because a top lawyer at the regulator had inappropriate contacts with the hedge fund. Kotz complained that the disciplinary action he recommended had not occurred.

"I am tremendously proud of the accomplishments of my office and the agency over the past four years," Kotz said. "The reports we have issued have not only been significant to the agency, Congress and the investing public, but they have also directly resulted in a transformation of many of the divisions and offices of the commission."

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