The chairman of the Securities and Exchange Commission is blaming the agency's staff for a decade-long failure to investigate Wall Street money manager Bernard Madoff, now accused of running the largest-ever pyramid investment scheme.
A key lawmaker says Congress will investigate the Madoff scheme and why the SEC and other regulators failed to detect problems earlier.
SEC Chairman Christopher Cox late Tuesday ordered an internal review into the agency's failure. The investigation will be led by the agency's inspector general, he said.
Cox said SEC staff attorneys never sought a formal commission-approved investigation that would have forced Madoff to surrender vital information under subpoena. Instead, the regulator's staff relied on Madoff and his firm, Bernard L. Madoff Investment Securities LLC, to voluntarily provide information, Cox said.
"I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them," Cox said in a written statement.
Allegations regarding Madoff's financial wrongdoing go back to at least 1999 and were repeatedly brought to the attention of SEC staff, Cox said.
The chairman of a House Financial Services panel, Democratic Rep. Paul Kanjorski, said the scandal has further weakened already-battered investor confidence in securities markets and has raised more troubling questions about the effectiveness of the regulatory system.
The Pennsylvania congressman said Wednesday he will convene a congressional inquiry early next month to examine the alleged Madoff fraud and to determine why the SEC and other regulators failed to detect what he described as "these substantial evasions."
Shock waves from the Madoff affair have radiated around the globe as a growing number of prestigious charitable foundations, big international banks and individual investors acknowledge falling victim to an unprecedented fraud. Losses have been estimated at $50 billion. Madoff, who was arrested Dec. 11, remains free on $10 million bail.
U.S. Attorney General Michael Mukasey has recused himself from the Justice Department's investigation into Madoff. Mukasey's son, Marc Mukasey, is representing Frank DiPascali, a Madoff firm official, in the probe.
Justice Department spokesman Peter Carr said Wednesday that the attorney general would not oversee or otherwise be involved in any aspect of the investigation, which is being run out of the U.S. attorney's office in Manhattan.
From NPR staff and wire reports