Big problems seen at SEC

WASHINGTON — Republican and Democratic House members said Monday that the alleged $50 billion fraud involving Wall Street figure Bernard Madoff reflects deep, systemic problems at the Securities and Exchange Commission.

Inspector General H. David Kotz said he is so concerned about the SEC's failure to uncover Madoff's alleged Ponzi scheme that the IG is expanding the inquiry called for last month by SEC Chairman Christopher Cox. Cox had pushed the blame squarely onto the SEC's career staff for the failure to detect what Madoff was doing.

At the first congressional hearing on the scandal, Rep. Spencer Bachus, R-Ala., called for Congress to create a regulatory structure "for the 21st century."

The House Financial Services Committee is trying to determine how, despite warnings back to at least 1999 to SEC staff members, Madoff continued to operate his alleged scheme.

"Clearly, our regulatory system ... failed miserably and we must rebuild it now," said Rep. Paul Kanjorski, D-Pa.

Rep. Paul Hodes, D-N.H., said the Madoff scandal is like "the cherry on a bad sundae."

Kotz said he'll examine the operations of the SEC's enforcement and inspection divisions and make recommendations, steps beyond what Cox had called for.

Thousands of individuals — including ordinary people and Hollywood celebrities — lost money investing with Madoff. So did big hedge funds, international banks and charities around the globe. A prominent French financier who had entrusted his fortune and his clients' money to Madoff was found dead at his office in New York on Dec. 23, an apparent suicide.

Federal prosecutors said in court Monday that Madoff, 70, violated bail conditions by mailing about $1 million worth of jewelry and other assets to relatives and should be jailed without bail.

"I am a human face on this tragedy," said Allan Goldstein, a retired New York textile distributor who testified at Monday's House hearing.

Goldstein, 76, said he lost his entire life savings with Madoff and had to cash in his life insurance policies to cover his mortgage.

"Everything I worked for over a 50-year career is gone," he said.