Democrats press for reforms at Madoff hearing

By Kevin Drawbaugh and Rachelle Younglai

WASHINGTON (Reuters) - A congressional hearing into the alleged $50-billion Bernard Madoff fraud drew calls from Democratic lawmakers for an overhaul of financial regulation as their confidence ebbs in the U.S. Securities and Exchange Commission.

"Clearly our regulatory system has failed miserably and we must rebuild it now," said Rep. Paul Kanjorski.

The Pennsylvania Democrat chaired a committee hearing Monday on the scandal involving one-time Wall Street powerbroker Madoff, who stands accused of running a massive fraud that touched investors and charities around the world.

Witnesses at the House Financial Services Committee hearing included SEC Inspector General David Kotz, who pledged a thorough inquiry of the agency's handling of the case.

The SEC has been under fire for not uncovering the Madoff fraud until Madoff's sons told authorities he had confessed to them. The investor protection agency has also been blamed for not following up on tips, and missing a number of red flags such as Madoff's ability to generate a steady rate of return in all types of market conditions.

"Many of us have lost confidence in the SEC," said Rep. Carolyn Maloney, a Democrat from New York.

"Where can we go to get the proper oversight? I don't have trust in them (the SEC) for the future," she said.

Rep. Brad Sherman, a California Democrat, said the SEC and the Financial Industry Regulatory Authority, a broker watchdog, should have been enforcing the securities laws in this case.

Leaders of the Senate Banking Committee said on Monday the panel would examine the SEC and FINRA's performance. Chairman Christopher Dodd and Richard Shelby, the top Republican on the committee, asked the SEC to produce documents, including complaints about Madoff's firm.

Rep. Spencer Bachus of Alabama, the ranking Republican on the House panel, said he saw no need at this stage for broad new laws or rules for the securities industry.

"What we may have in the Madoff case is not necessarily a lack of enforcement and oversight tools, but a failure to use them," Bachus said.

LIFE SAVINGS VANISH

Madoff investor Allan Goldstein, 76, told lawmakers he had entrusted Madoff with all he had; his life savings had vanished "in the blink of an eye."

"Ruth (Goldstein's wife) and I thought we were living the American dream. Our dream as well as many others has turned into a nightmare," said Goldstein, who said he has been forced to cash in his life insurance to pay his mortgage.

It is not clear whether investors will be able to recover any of their money. The trustee for the Madoff investment firm has identified over $830 million in liquid assets of the defunct brokerage firm that may be subject to recovery.