Key senator asks regulators to report

WASHINGTON — The head of the Senate Banking Committee on Tuesday asked regulators to report frequently to the panel on their progress to improve fraud detection after their failure to discover the multibillion-dollar pyramid scheme allegedly hatched by disgraced financier Bernard Madoff.

At a hearing, Sen. Christopher Dodd, the Connecticut Democrat who is the committee's chairman, closely questioned the enforcement director of the Securities and Exchange Commission and another SEC official as well as the interim chief executive of the Financial Industry Regulatory Authority, the securities industry's self-policing organization.

"What's happened here?" Dodd asked. He said he wanted action "very quickly in this area." He asked the regulators to report every three months to the committee on improvements they were making.

Linda Thomsen, the SEC's enforcement director, said the agency is committed to finding ways to bolster fraud detection after its breakdown in the Madoff case. While the agency needs to improve its internal processes for pursuing cases, she said the SEC also needs authority to regulate parts of the financial system that escape oversight and more funding to carry out more investigations.

"While we always do our utmost to do more with less, if we had more resources, we could clearly do more," Thomsen testified at the hearing, which was Congress' first opportunity to question federal regulators responsible for inspecting investment firms and taking enforcement action against fraud.

Lori Richards, who heads the SEC's inspections office, said agency officials are thinking "expansively and creatively" about changes that could improve the detection of fraud.

But Sen. Richard Shelby of Alabama, the banking panel's senior Republican, said that generally in cases of failure, regulators' natural reaction "is to cry lack of resources."

The SEC has faced heavy criticism over its failure to discover the $50 billion Ponzi scheme allegedly run by Madoff, the prominent Wall Street figure and money manager now fallen into disgrace — despite credible allegations against him that were brought to the agency over the course of a decade. Against the backdrop of the worst financial crisis since the 1930s, the SEC also is accused of contributing to that disaster with lax oversight of Wall Street and the markets. Lawmakers of both parties are calling for a shake-up of the agency to help restore investor confidence.