A U.S. congressional committee on Monday held the first of what is expected to be numerous hearings on an alleged massive financial fraud by New York asset manager Bernard Madoff.
Madoff is alleged to have defrauded billions of dollars from people who invested with his Wall Street asset management firm since the 1990s.
According to the Securities and Exchange Commission, or SEC, his activities became a massive fraud operation in which returns for existing investors were paid from funds from new investors rather than from actual profits.
As U.S. and global markets plunged, and amid mounting investor requests to redeem their investments, Madoff revealed the scope and nature of his scheme to his two sons who contacted an attorney who alerted federal authorities.
On Monday, lawmakers on the House of Representatives Financial Services Committee focused on the damage inflicted on thousands of investors from the Madoff operation.
"It would be almost impossible to over-state the pain his scheme has caused," said New York Rep. Carolyn Maloney. Congressman Gregory Meeks added: "We're dealing with a crook. We're dealing with an individual who took people's money and lost it. He is a crook; he deserves to go to jail."
There is bipartisan concern about the impact of the Madoff scandal on investor confidence, with Democrats and Republicans suggesting there were major failures by the Securities and Exchange Commission to stop it.
SEC Inspector General H. David Kotz pledged a thorough and comprehensive investigation to uncover the facts. He said the probe could expand into a more expansive look at SEC operations. "It is crucial for the commission, the Congress and the investing public that answers be given to the very serious questions regarding the SEC's efforts relating to Mr. Madoff in a prompt and swift manner," he said.
Stephen Harbeck heads the Securities Investor Protection Corporation, or SIPC, which was created by Congress in 1970 to provide financial protection to customers of failed brokerage firms. "This fraud was of a completely different order of magnitude in SIPIC's history," he said.
In addition to examining past complaints against Madoff, the SEC's David Kotz said the investigation will cover allegations of conflicts of interest between Madoff or his family members and SEC officials, whether warning signs were overlooked, and whether Madoff's reputation and social status in the investment community, had an affect on the SEC's actions.
Majority Democrats in the House of Representatives say they will push new legislation to strengthen financial market oversight and regulation.
On Monday, House Financial Services Committee Chairman Barney Frank said the damage inflicted by the Madoff scandal underscores the need for such steps. "This is one more example of why we need to adopt in this coming Congress a set of rules that will give investors in America the confidence that many of them have lost, unfortunately, because of these scandals and which has to be restored if we're to have a return to the prosperity that the market functioning well can give us," he said.
Ranking committee Republican Spencer Bachus said the Madoff affair and concern about similar frauds threaten to further undermine investor confidence as the government attempts to stabilize markets. "The Madoff affair is yet another indication that what is needed is a statutory and regulatory structure for the 21st century. We don't have that."
While the Madoff matter exposed regulatory failures, Bachus said he has not yet concluded there is a need for broad new legislative or regulatory mandates on the rest of the securities industry.
Madoff, who is 70 years old, was formally charged with securities fraud in December and is free on 10-million dollars bail. He remain in his New York home under house arrest.