SEC Probes Its Own Chummy Ties To Madoff

Bernard Madoff arrives at Manhattan federal court Thursday, March 12, 2009, in New York. (AP Photo/Louis Lanzano)
AP Photo/Louis Lanzano
This story was written by CBS News' Faiza Virani

The internal investigation into how the SEC failed to detect the largest Ponzi scheme in history is heating up.

In a recent report to Congress, Inspector General David Kotz of the SEC outlined his investigation into how the enforcement agency overlooked the massive scam despite investigating Bernard L. Madoff seven times in eleven years. Kotz's full report is expected in August.

According to the report, Kotz is concentrating on personal and professional relationships between the SEC staff and Bernie Madoff, and how it may have potentially affected the Commission's oversight.

For example, Kotz is looking into a former SEC official who allegedly had a personal relationship with a Madoff family member. It has been reported that the former SEC employee is Eric Swanson, a compliance lawyer for the SEC who is now married to Shana Madoff, Bernie Madoff's niece. Kotz is investigating whether or not their relationship affected the SEC's regulatory oversight of Madoff's affairs.

Investigators have already reviewed more than 1.3 million emails from at least 27 SEC employees relating to the SEC's investigations of Madoff. The Inspector General has also ordered e-mail providers to preserve and maintain personal e-mail accounts of several unnamed individuals. More document requests are underway.

The investigation includes interviews of 44 witnesses and the sworn testimony of 13 current and former SEC employees.