SEC watchdog making progress on Madoff probe

WASHINGTON, July 13 (Reuters) - The U.S. Securities and Exchange Commission's internal watchdog on Monday said he is making "substantial" progress in a probe of whether the agency mishandled the case of Bernard Madoff's $65 billion Ponzi scheme.

SEC Inspector General David Kotz said he has interviewed more than 100 witnesses and reviewed "millions" of e-mails and documents in connection with the investigation that began in December.

At a Congressional hearing, Kotz said he plans to soon issue a comprehensive report detailing all examinations and investigations that the SEC conducted of Madoff or Madoff-related entities from 1992 until the present.

The report will analyze the reasons why the SEC did not uncover the Madoff Ponzi scheme, Kotz said at a House Financial Services subcommittee hearing to examine illegal trading by government workers.

Kotz has already given Representative Paul Kanjorski, a senior Democrat on the committee, recommendations to mandate that hedge funds and investment advisers use an independent custodian to maintain investments in separate accounts like mutual funds are required to do.

(Reporting by Rachelle Younglai, editing by Matt Daily)