Madoff Fallout Could Boost Tech Oversight

With investors still counting the cost of Bernard Madoff's alleged $50 billion fraud, the scandal may have wide-ranging technology implications as regulators come under intense pressure to tighten their grip on investment firms.

Madoff, the founder of Bernard L. Madoff Investment Securities, was recently charged with securities fraud in what SEC officials are describing as a multibillion-dollar "Ponzi scheme." With questions now being asked about how the government repeatedly failed to notice the alleged scheme, it is almost inevitable that regulators will push for much greater visibility into financial firms' data.

Even the SEC itself has admitted that it needs to get its house in order. In a startling mea culpa, the commission's outgoing Chairman Christopher Cox acknowledged the SEC's shortcomings, describing "multiple failures over at least a decade" related to the Madoff case.

With President-elect Barack Obama's appointment of Mary Schapiro as new SEC chief this week, there is clearly a political desire to see the financial sector more effectively policed. The incoming president, for example, again reiterated his desire to make financial regulatory reform a top priority for his administration.

"There's going to be more oversight, and I can't imagine that technology won't play a part in it," said Rob Ayoub, program director for network security at technology analyst firm Frost & Sullivan. "You're going to see a much more wide-scale focus on data mining and data analytics to catch some of these things."

The analyst explained that government regulations, although not necessarily specifying the technologies, often have major implications for firms' IT infrastructures. The Sarbanes-Oxley legislation, for example, forced many firms to rethink their data handling and storage capabilities.