SEC Watchdog to be Probed Today About Madoff Lapses

January 5, 2009

BOSTON (ChattahBox) — The House Financial Services Committee is scheduled to hold hearings Monday on why the alleged Bernard Madoff $50 billion Ponzi scheme was never uncovered.  The Wall Street Journal reported today that Madoff’s investment firm was probed at least eight times in 16 years by the Securities and Exchange Commission and other regulators. The SEC examined the firm after receiving emails from a hedge fund that described Madoff’s business practices as “highly unusual,” while the Financial Industry Regulatory Authority in 2007 said parts of the firm appeared not to have any customers, the newspaper reported.

The House Financial Services Committee is scheduled to hear from one of Madoff’s alleged victims, securities law experts and the SEC’s inspector general, David Kotz, who’s probing the agency’s handling of the matter. Harry Markopolos, the former money manager who says regulators didn’t act on his tips about Madoff, canceled his appearance. SEC Chairman Christopher Cox said Dec. 16 that he asked Kotz to review how the agency responded to tips about Madoff and to find ways to improve internal policies. The staff failed to act for almost a decade on “credible and specific” allegations and never recommended commissioners take action, Cox said. The SEC closed a Madoff probe in 2007 that Markopolos helped trigger. Cox, a Republican appointed by President George W. Bush, has said he will leave office at the end of the Bush administration. Obama on Dec. 18 announced his choice of brokerage regulator Mary Schapiro to succeed Cox.

The SEC may and should have to defend its existence. The SEC was facing criticism before Madoff’s arrest. Last year’s collapse of investment banks Bear Stearns Cos. and Lehman Brothers tarnished the agency’s reputation as a market watchdog, and senators have questioned its vigilance in enforcing securities laws. Whether the agency should be beefed up or dismantled will be a likely topic at meetings this year about the SEC’s future.


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