House to Query SEC Watchdog About Madoff

WASHINGTON -- The Securities and Exchange Commission heard rumblings about Wall Street money manager Bernard Madoff's investment methods nearly a decade ago. Now a House panel wants to know how, despite those warnings, Madoff continued to operate without an agency investigation.

The Financial Services Committee will question the SEC's internal watchdog Monday, as lawmakers try to learn why the regulatory agency failed to detect an alleged $50 billion investment fraud by Madoff.

Madoff's alleged Ponzi scheme will be a case study for a planned overhaul of laws regulating financial markets, said Rep. Paul Kanjorski, D-Pa., who will chair the hearing.

Witnesses include H. David Kotz, the SEC inspector general. He already is looking into the agency's failure to uncover the fraud despite several warnings.

Kotz previously said he will examine the relationship between a former SEC attorney and Madoff's niece, who are now married.

SEC Chairman Christopher Cox has said credible and specific allegations regarding Madoff's wrongdoing -- going back to at least 1999 -- were repeatedly brought to the attention of SEC staff. Cox said he was concerned by the apparent multiple failures to thoroughly investigate the allegations or at any point to seek formal authority from the commission to pursue them.

Kanjorski, who heads a Financial Services subcommittee, said in an interview, "I hope this doesn't turn out to be a 'gotcha' hearing." Rather, he said, lawmakers will be asking, "Where were the failures? Where were the holes?"

He said Cox's statements on staff failures were a surprising indictment of his own agency.