U.S. lawmakers to question SEC watchdog about Madoff

WASHINGTON (Reuters) - The internal watchdog at the U.S. Securities and Exchange Commission will testify Monday at a hearing by U.S. lawmakers who want to know how the investor protection agency failed to detect the alleged $50 billion fraud by Wall Street financier Bernard Madoff.

Members of the U.S. House Financial Services committee will take their first close look at the alleged Ponzi scheme that has touched everyone from bearish "Dr. Doom" economist Henry Kaufman to actor Kevin Bacon, both of whom invested with Madoff.

Madoff, a former Wall Street fund manager, is accused by federal prosecutors of running a $50 billion scam that ensnared wealthy investors, banks and charities around the world.

He faces a Wednesday deadline to tell the SEC how much he is worth and where his money and other assets are. In general, the SEC is not required to immediately publicly file such disclosures with the courts.

Critics say the SEC missed warning signs and failed to uncover the scandal until Madoff's sons went to authorities and told them Madoff had confessed to the fraud. SEC Chairman Christopher Cox recently asked inspector general David Kotz to probe the agency's conduct in the case.

Kotz will testify at the hearing, which will help lawmakers planning "the most substantial rewrite" of laws regulating the U.S. financial markets since the Great Depression, said Rep. Paul Kanjorski, a Pennsylvania Democrat and chairman of the subcommittee on capital markets.

Also appearing will be Harry Markopolos, the former chief investment officer at Rampart Investment Management who said he repeatedly tried to get the SEC to investigate Madoff, and Stephen Harbeck, president of the Securities Investor Protection Corp. The nonprofit SIPC was created by Congress in 1970 to maintain reserves to help investors at failed brokerage firms.

SIPC has said it expects it will take several years to find the money in remote locations and sort through investor losses from the alleged fraud.

The witness list also includes Allan Goldstein, a retiree and investor with Bernard L. Madoff Investment Securities; Tamar Frankel, a law professor at Boston University, and Leon Metzger, a hedge fund expert who has taught at Yale University.

(Reporting by Karey Wutkowski and Julie Vorman; Editing by Brian Moss and John Wallace)