Madoff scandal prompts SEC to set up financial fraud taskforce

The US Securities and Exchange Commission (SEC) will set up five specialised units to detect financial criminals more efficiently, following criticisms its examiners are not equipped to deal with complex financial cases.

Earlier this year, the regulator was accused of institutional incompetence after failing to expose the $50 billion Bernard Madoff Ponzi scam despite repeated tip-offs. In February, the US Congress House Committee on Financial Services was told by fraud examiner Harry Markopolos that SEC examiners had no expertise in derivatives or quantitative finance and were therefore unable to uncover complex fraud.

"Many questioned the effectiveness of the division in light of the revelations surrounding Bernard Madoff and his egregious conduct," Robert Khuzami, director of the SEC's division of enforcement, said in a speech before the New York City Bar on August 5.

"We listened to the criticism and used it as a learning opportunity. We did what a responsible public agency must do: we used the episode as a catalyst to undertake a vigorous self-assessment of how we do our job."

The result of the exercise will be five specialised units dedicated to complex areas of securities law. The asset management unit will handle cases involving investment companies, hedge funds and private equity funds. The market abuse unit will focus on large-scale market abuses and complex manipulation schemes. And the structures and new products unit will scrutinise issues related to complex derivatives and financial products. There will also be a foreign corrupt practices unit, and a municipal securities and public pensions unit.