SEC watchdog making progress on Madoff probe

WASHINGTON (Reuters) - An in-depth review of how the U.S. Securities and Exchange Commission missed Bernard Madoff's $65 billion Ponzi scheme should be completed within six weeks, according to testimony by SEC Chairman Mary Schapiro released on Monday.

"The Madoff fraud is one that the agency did not detect, and not a day goes by that we don't regret it," Schapiro said in prepared testimony to be delivered at a Congressional hearing on Tuesday. A copy of the testimony was released on Monday by the House Financial Services Committee.

Schapiro said she expected to receive a report from the SEC's internal watchdog within the next six weeks.

The watchdog, SEC Inspector General David Kotz, said he was making "substantial" progress in his review of whether the agency mishandled tips about the Madoff case.

Kotz told a House Financial Services subcommittee hearing on Monday that he has interviewed more than 100 witnesses and reviewed "millions" of emails and documents in connection with the investigation that began in December. His report is expected to detail all examinations and investigations that the SEC conducted of Madoff or Madoff-related entities from 1992 until the present.

The report will analyze the reasons why the SEC did not uncover the Madoff Ponzi scheme, Kotz said at a hearing held to examine illegal trading by government workers.

The SEC has been widely criticized for missing warning signs about the fraud, which was uncovered when Madoff's sons went to authorities and told them he had confessed.

Kotz has already given Representative Paul Kanjorski, a senior Democrat on the committee, recommendations to mandate that hedge funds and investment advisers use an independent custodian to maintain investments in separate accounts like mutual funds are required to do.

Madoff was sentenced last month to 150 years in prison after he pleaded guilty to criminal charges that included securities fraud, money laundering and perjury. His sentence was one of the stiffest ever handed down in a high-profile white collar crime.

(Reporting by Rachelle Younglai; Additional reporting by Karey Wutkowski; Editing by Matt Daily, Gary Hill)