SEC undertakes wide-ranging Madoff review

By Marcy Gordon

updated 2:59 p.m. ET Jan. 5, 2009

WASHINGTON - The internal watchdog at the Securities and Exchange Commission said Monday an investigation of the agency's failure to uncover the alleged $50 billion fraud involving Wall Street figure Bernard Madoff will extend broadly to the agency's enforcement operations.

Inspector General H. David Kotz is testifying before a House panel examining the Madoff affair and the agency's failure to act despite receiving complaints over a decade.

In prepared testimony for the Monday afternoon hearing, Kotz said his office's probe will go beyond specific issues that SEC Chairman Christopher Cox asked him to investigate. He said that it also will examine the operations of the SEC's enforcement and inspection divisions and will make recommendations.

At the start of the hearing, Democrat Paul Kanjorski of Pennsylvania questioned whether congressional appropriations had given the agency sufficient resources to do the job. From 1995 to 2007, Congress was under Republican control.

"Clearly, our regulatory system ... failed miserably and we must rebuild it now," said Kanjorski.

Rep. Spencer Bachus, R-Ala., pointed to regulatory gaps rather than the level of congressional appropriations as the reason for the Madoff scandal.

Bachus called for Congress to create a regulatory structure "for the 21st century."

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