WASHINGTON, DC - The US Congress has launched its inquiry into the causes and events of Bernard Madoff's $50 billion fraud - the largest Ponzi scheme (or pyramid scheme) in history.
The House Financial Services Committee yesterday began questioning investors and regulators from the US Securities and Exchange Commission (SEC). David Kotz, the SEC inspector-general, has been among those to take the stand.
Kotz said he is investigating allegations of conflicts of interest between SEC employees and members of Madoff's family. On one occasion Madoff - who has been under house arrest since December - reportedly boasted his niece had married a former SEC official.
Kotz faced lawmakers' calls for regulatory restructure in the wake of the SEC's failure to supervise Madoff's activities. The regulator failed to investigate Madoff since his fraudulent fund's creation in 2006.
"We now know our securities regulators have not only missed opportunities to protect investors against massive losses from the most complex financial instruments, such as derivatives, but they have also missed the chance to protect them against the simplest of scams, the Ponzi scheme," says Democratic representative Paul Kanjorski.
US hedge funds have been among those worst hit by the fraud. Fairfield Greenwich has lost up to $7.5 billion and Tremont Group up to $3.3 billion. Both are now being sued by their investors. Thierry de la Villehuchet, chief executive and co-founder of Access International, which lost $1.5 billion, allegedly committed suicide on December 23.
Other notable victims include banks - with Santander, HSBC, BNP Paribas and the Royal Bank of Scotland facing a combined exposure of around $5 billion - while a variety of smaller investors, including many US charitable organisations, have lost millions.