Madoff failure a "wake-up call" for SEC

8 May 2009

The Securities and Exchange Commission's (SEC) failure to uncover Bernard Madoff's $65 billion Ponzi scheme has been a "wake-up call" for the agency, its new director of enforcement has told lawmakers.

Speaking before the Senate banking committee, Robert Khuzami said there could have been "multiple" issues that contributed to the SEC's failure to act in the case.

The SEC has been criticized for its handling of the case. Whistleblower Harry Markopolos had previously told lawmakers that he had "gift wrapped and delivered" the Madoff fraud to the regulator by raising "dozens of red flags" about the broker's business activities - but the SEC never followed up on the warnings.

However, Mr Khuzami said the SEC's enforcement division is now undergoing a change in its culture.

Since the end of January, the number of investigations opened by the SEC has risen 32 per cent year-on-year to 287 cases, he said. Over the same period, SEC lawyers have secured at least 27 emergency asset freezes against suspects, compared with seven orders last year.

Mr Madoff was arrested in December after admitting his fraud to his sons. He pleaded guilty to 11 criminal charges including money laundering, perjury and securities fraud in March.

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