WASHINGTON - THE chairman of the US 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 US$50 billion (S$74.7 billion) in potential losses.

The longtime Wall Street executive on Tuesday scrambled to find relatives or friends to guarantee his bond and keep him of jail.

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.

Mr 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,' Mr Cox said.

Mr Cox has asked the agency's internal watchdog to probe the agency's conduct in the Madoff case. Specifically, Mr 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, Mr Cox added.

In Massachusetts, where the disgraced investor long cultivated a loyal group of wealthy individuals, the state's chief securities regulator subpoenaed Bernard L. Madoff Investment Securities and Cohmad Securities Corp, a firm that marketed Madoff investment products.

The two firms must hand over the names and addresses of all local residents who let Madoff invest their money by Dec 29.

They must also deliver notes, emails, meeting agendas related to investments made since 2000, Mr William Galvin, the state's Secretary of the Commonwealth, said on Tuesday.

In New York, Madoff, who was arrested last week, has not yet fully met the conditions of his US$10 million bond, according to court papers. He must find three co-signers to guarantee the bond.

If he fail to meet all the conditions, prosecutors could seek to have the 70-year old Madoff jailed, pending trial. A court hearing was set for Wednesday on bail matters after a Tuesday hearing was postponed.

Madoff, a former chairman of the Nasdaq Stock Market, faces up to 20 years in prison and a maximum fine of US$5 million if convicted.

As more banks, hedge funds and wealthy investors around the world realise they fell victim to a man long respected on Wall Street for the steady returns that his funds produced year after year, their outrage has grown.

Law school lawsuit
'The names and sizes of those exposed to Bernard Madoff keep growing and most remarkable of all is the concentration of investments made by funds of hedge funds which promise their clients a diversified portfolio,' said Mr Philippe Bonnefoy, chairman of the asset allocation committee at Cedar Partners, an investment adviser.

A fund of hedge funds is a basket of funds selected by the manager to spread around risk.

New York Law School sued Ascot Partners LP, an investment firm, general partner J. Ezra Merkin and auditor BDO Seidman LLP on Tuesday over investments with Madoff.

Massachusetts Mutual Life Insurance Co acknowledged its exposure to Madoff after a hedge fund unit invested heavily with him. Tremont Holdings Inc's Rye Investment Management unit lost roughly US$3 billion, nearly all of the money the unit managed, people familiar with the matter said.

Madoff is also closely tied to Mr Carl Shapiro, a 95-year-old Boston philanthropist who bestowed much of his fortune to the city's Beth Israel Deaconess Medical Centre and the city's Museum of Fine Arts.

Austria's Bank Medici, a closely held bank serving wealthy clients, also said it was affected by Madoff's scheme, but declined to give a total for its losses.

At the same time, prosecutors and regulators asked people who suspect that they lost money to Madoff to come forward.

The US Attorney's Office in New York, which is prosecuting the Madoff case, set up a website for investors who may have been victimised. It also posted an FBI hotline number, for investors to call.

Sifting through the papers

Investors were requested to gather any documents related to their Madoff investments and to check the website and others set up by the US Securities and Exchange Commission, the trustee of Madoff's brokerage business and the court-appointed receiver in the case.

Lawyers worried that many of the financial statements that Madoff's firm mailed to clients were not accurate, and that it will take months to sift through the papers.

'This is a mess and it will take much longer than normal,' said Mr Douglas Hirsch, a partner at law firm Sadis & Goldberg, describing the work facing the trustee appointed to oversee the liquidation of Madoff's firm.

The Securities Investor Protection Corp, a nonprofit organisation that provides limited insurance on investors' accounts, was named as trustee on Monday.

Madoff, who was well-known on the charity ball circuit and long supported cancer and diabetes research, also gave about US$238,200 to political candidates, parties and committees, mostly Democratic, since 1991, according to the Center for Responsive Politics, which tracks political giving.

US Senator Charles Schumer, a New York Democrat, received US$12,000, while US Representative Edward Markey, a Massachusetts Democrat, received US$10,000 over the years, the Centre found.

The impact of Madoff's alleged fraud may be felt most severely among hedge funds. For example, the Credit Suisse/Tremont Hedge Fund Index fell 4.15 per cent in November, far more than the preliminary 0.7 per cent decline reported last week.

Standard & Poor's said it will review public sector entities, such as universities, that invested with Madoff, to see whether their ratings should be cut as a result of their likely investment losses. -- REUTERS

Investigators to ask 'who else and how much?'

NEW YORK - DAYS after the arrest of veteran Wall Street money manager Bernard Madoff, many questions remain about the alleged fraud.

Here are some of the things investigators will want to nail down as they continue their probe:

Was anyone else involved?

This may be the most pressing question. Investigators are sure to look at others who worked at Madoff's firm and who had knowledge of his activities and his company's books.

According to the criminal complaint filed against him, Madoff has told the FBI that he alone is responsible. Madoff himself has not responded to the securities fraud case against him in court. A lawyer for his sons, who worked at his firm, has said they knew nothing of the alleged fraud.

Legal experts say investigators will look at whether anyone else was involved in sending account statements to clients and keeping records for his asset management business.

'I think a lot more is going to come out over time,' said Mr Ken Springer, a former FBI agent who heads Corporate Resolutions Inc, which investigates companies on behalf of investors and other clients.

Already, the small auditing firm Madoff used, Friehling & Horowitz in a suburb of New York City, is under investigation by the District Attorney in Rockland County for potential violations of New York state law. A message left on the auditor's voice mail by Reuters was not returned.

Where is the money?

Madoff managed assets of at least US$17 billion as of the beginning of 2008, but he told employees last week that he had about US$200 million (S$292 million) to US$300 million left, the government contends. He said he personally was insolvent, according to the criminal complaint.

Experts say investigators will want to know if any money is left in Madoff's company accounts and if any is held offshore.

'I doubt they will ever be able to figure it all out completely, although maybe he kept good records,' said Professor Peter Henning of Wayne State University Law School, and an expert on white-collar crime.

Prof Henning said investigators were apt to examine the firm's bank accounts and overseas transfers, which could be complicated because Madoff had many European clients, which could make some transfers hard to trace.

When and how did the suspected fraud start?

Madoff founded his firm in 1960 and has been a prominent figure on Wall Street for decades.

Investigators will want to know if his money management business started legitimately, then turned into a suspected fraud, or if the suspected wrongdoing went on for much longer.

Madoff is accused of running a Ponzi scheme, a swindle in which money taken from newer investors is used to pay older investors. Unlike many Ponzi schemes that start fraudulently promising high rates of return, Madoff offered steady gains, said Mr Joel Cohen, deputy head of law firm Clifford Chance's litigation and dispute resolution practice in New York.

'In this case, he was offering returns of 10 or 11 per cent,' he said. 'So the relatively modest returns would seem to suggest it developed into a Ponzi scheme, or he had such a sophisticated understanding of a Ponzi scheme that he knew the returns to offer to make investors comfortable.'

What was the motive?

Perhaps surprisingly, legal experts say this is the least pressing question and one that might never be answered.

They say that when someone is accused of running a long-running scam, the person may never reveal the true story behind it even if he or she confesses.

'To the extent he wants to try to justify what he did somehow is so unimportant given the harm that he caused,' Prof Henning said. 'Frankly, I would never want to know.' -- REUTERS

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