SEC's Cox questions agency conduct on Madoff case

WASHINGTON (Reuters) - The chairman of the U.S. Securities and Exchange Commission said on Tuesday he was "gravely concerned" by the agency's apparent multiple failures to thoroughly investigate allegations of wrongdoing at broker Bernard Madoff's firm.

Madoff, a former Nasdaq Stock Market chairman, was arrested and charged last week with running a massive Ponzi scheme that may have racked up $50 billion in potential losses.

The SEC has come under fire for not uncovering the scandal until senior employees of Madoff went to authorities last week. The investor protection agency has been accused of missing a number of red flags about the way Madoff operated his investment business.

"Our initial findings have been deeply troubling," SEC Chairman Christopher Cox said in a statement late on Tuesday.

Cox said the SEC has learned that credible and specific allegations regarding Madoff's financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the commission for action.

"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," Cox said. SEC staff relied on information voluntarily provided by Madoff and his firm rather than using subpoenas to obtain it, Cox said.

Cox has asked the agency's internal watchdog to probe the agency's conduct in the Madoff case. Specifically, Cox has asked the inspector general to review past allegations and the reasons they were not found credible. The inspector general probe should also include all staff contact and relationships with the Madoff family and firm, Cox added.

Madoff's niece Shana Madoff, a compliance lawyer at Madoff's firm, is married to a former SEC staffer, Eric Swanson, who was the agency's assistant director in the office of compliance inspections and examinations.

The compliance division is in charge of examining registered entities, such as broker dealers, investment companies and investment advisers.