U.S. Regulators Step Up Exams of Firms That Resemble Madoff’s

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U.S. Regulators Step Up Exams of Firms That Resemble Madoff’s


By Jesse Westbrook

June 17 (Bloomberg) -- U.S. regulators have stepped up examinations of money managers and brokerages that share characteristics with Bernard Madoff’s firm after his $65 billion Ponzi scheme went undetected for at least a decade.

The Securities and Exchange Commission is conducting a nationwide “sweep” of investment advisers that hold client assets and hedge funds that have “smooth or outlier returns,” Lori Richards, who heads the agency’s inspections office, said today in a St. Louis speech. The SEC also is scrutinizing money managers that employ an “unknown auditor,” she said.

The SEC is overhauling the process for handling examinations and tips on suspicious trading after it drew fire from lawmakers for missing Madoff’s fraud. Those efforts may have helped stave off calls to strip some of the SEC’s responsibilities, as a plan for regulatory reform released by the Obama administration today leaves the agency largely intact.

Richards, speaking to a Securities Industry and Financial Markets Association conference, said the SEC is planning a surveillance program that relies on a “constant flow of timely and reliable information” from the firms it inspects.

The office is working with agency staff to determine “key data points” it needs and will recommend rules to improve “surveillance and risk-based targeting,” she said.

Since learning of Madoff’s fraud in December, the Financial Industry Regulatory Authority has conducted two “broad reviews,” Chief Executive Officer Richard Ketchum said during a speech in Washington today.

One focuses on the role brokerages played in steering investor money to Madoff, and the other examines firms that, similar to Madoff’s, are registered as brokerages and investment advisers. Finra, which is funded by Wall Street and has executives from securities firms on its board, regulates more than 5,000 U.S. brokerages.

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.

Last Updated: June 17, 2009 18:49 EDT