U.S. market cops ramp up fraud training after Madoff

WASHINGTON/NEW YORK Mon Mar 23, 2009 6:36pm EDT

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WASHINGTON/NEW YORK (Reuters) - Burned by their failure to uncover the biggest Ponzi scheme in history, U.S. securities regulators are ramping up training of staff on how to spot the warning signs of market swindles.

The Securities and Exchange Commission has been widely criticized for failing to spot the $65 billion fraud carried out by Wall Street financier Bernard Madoff. Now its inspection unit is offering 90-minute classes for employees.

"We're doing it because of Bernie Madoff," said one SEC official who spoke on condition of anonymity because staff are not authorized to speak on the SEC's behalf.

Madoff has confessed to running a massive Ponzi scheme -- in which funds of new investors were used to pay returns to existing members -- in a scandal that shook global finance.

The first class, replete with PowerPoint slides, called "Basics of Ponzi schemes, affinity fraud and related schemes," was given on March 9. A second class teaching "Exam issues and techniques for detecting Ponzi schemes, affinity fraud and related schemes" was scheduled for Monday, March 23.

Lori Richards, director of the SEC's Office of Compliance Inspections and Examinations, said the agency was increasing training for detecting methods fraudsters use, including keeping two sets of books, creating false statements and lying about investment returns.

"The training will help examiners spot the 'yellow flags' of fraud and to investigate them using the latest fraud detection techniques," she told Reuters on Monday.

SEC Chairman Mary Schapiro is also seeking a better way for handling tips and whistle-blower complaints and has taken steps to bolster the agency's enforcement unit.

The agency was excoriated by whistle-blower Harry Markopolos during congressional testimony on February 4. He sent a detailed memo to the SEC in 2005 with 29 red flags on Madoff's operations that were never followed up by enforcement or Office of Compliance staff in a meaningful way.

Madoff pleaded guilty to his massive swindle on March 12. He now is in jail while awaiting sentencing in June. He says he acted alone but the government continues to investigate.

(editing by William Schomberg and Dan Grebler)

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