Tuesday 30 December 2008
by: Rachelle Younglai, Reuters
Congress will investigate Madoff's $50 billion fraud and the SEC's oversight practices. (Photo: Justin Lane / European Pressphoto Agency)
Washington - Lawmakers will take their first close look next Monday at financier Bernard Madoff's alleged $50 billion fraud and why the Securities and Exchange Commission failed to discover the scandal.
Information gleaned from the hearing will help guide Congress as it attempts to reform laws regulating the U.S. financial system, said Rep. Paul Kanjorski, a Pennsylvania Democrat and chairman of the House capital markets subcommittee.
"Madoff's actions have further weakened the already battered investor confidence in our securities markets," Kanjorski said in a statement on Monday.
Madoff, a former Wall Street fund manager, is accused of running a $50 billion fraud that ensnared investors and charities around the world, according to authorities.
Critics say the SEC missed warning signs and failed to uncover the scandal until Madoff's sons went to the authorities and told them he confessed to the fraud. SEC Chairman Christopher Cox has asked an internal watchdog to probe the investor protection agency's conduct in the case.
Kanjorski said the Congressional hearing will examine if the SEC had enough staff and budget to police the markets.
"These proceedings will help us to discern whether or not the SEC had the resources needed to get the job done, how such a sizable scheme could have evaded detection for so long, and what new safeguards we need to put in place to protect investors," the lawmaker said.
Kanjorski did not identify who will testify at the hearing, scheduled for the day before the new Congress convenes. President-elect Barack Obama will be sworn into office on January 20.
The Madoff scandal, Kanjorski added, "provides a glaring example" of why Congress must launch the biggest reform of financial markets regulation since the Great Depression. Other lawmakers, including Senate Banking Committee Chairman Christopher Dodd, have said they want to streamline and improve the tangled U.S. regulatory structure that oversees banks and financial services.
Madoff is accused of running a giant Ponzi scheme, where he paid off early investors with money from later investors. He faces a criminal fraud charge filed by the U.S. Justice Department and a civil lawsuit filed by the SEC.
A federal judge in New York City recently set a December 31 deadline for Madoff to give the SEC a verified written accounting of his firm's records, bank accounts and other investments.
In addition to the federal lawsuits, a New York City investor who said she gave Madoff $2 million to manage sued the SEC and is seeking $1.7 million in damages from the federal agency.
Editing by Phil Berlowitz.