Watchdog 'knew of problems a decade ago'

AMERICAN regulators have ordered a full-scale internal inquiry into how they failed to spot the Madoff scandal.

The Securities and Exchange Commission has been condemned for failing to uncover the alleged fraud.

In a devastating admission of failure by his organisation, SEC chairman Christopher Cox admitted his watchdog has had "credible and specific allegations" going back nearly a decade against Bernard Madoff, the man who ran the £33billion alleged fraud.

Mr Cox said: "I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them." SEC staff were warned repeatedly since at least 1999 that there were questions over the fund's operation.

But no recommendation was made by officials to investigate. The chairman, who is personally appointed by the White House, said there would be an investigation of his agency.

He said the way it has handled the Madoff pyramid scheme is "deeply troubling" and asked the agency's inspector general to lead a "full and immediate review" of the past allegations against Madoff.

Madoff was extremely well connected on Wall Street and even worked for the SEC in an advisory role on regulatory issues.

It emerged today that his niece, Shana Madoff, a compliance lawyer at the family firm, had a relationship with a senior SEC inspector, Eric Swanson.

The revelations gave rise to speculation that the regulator and the Madoff business were far too cosy together.

The SEC denied Mr Swanson had been involved in monitoring Madoff.