FINRA defends its role in Madoff scandal

WASHINGTON (Reuters) - The watchdog for U.S. brokerages said it investigated 19 trading complaints about Bernard Madoff's broker-dealer firm but said they did not relate to any of the investment advisory issues involved in the financier's alleged $50 billion fraud.

The Financial Industry Regulatory Authority (FINRA) said on Wednesday it did not receive any complaints alleging fraud and that the U.S. Securities and Exchange Commission did not alert FINRA to any concern that the SEC may have had with the firm.

Madoff is under house arrest for allegedly bilking investors of billions of dollars through a so-called Ponzi scheme, where he paid off earlier investors with money from later investors.

"The SEC did not share the tips it received with FINRA," the brokerage watchdog said.

FINRA's comments come on the eve of FINRA Chief Executive Mary Schapiro's appearance before a Senate Banking Committee hearing on her nomination to join the SEC as chairman under the incoming Obama administration.

The committee has already started examining FINRA and the SEC's role in the Madoff scandal.

The SEC has been heavily criticized for not uncovering Madoff's alleged fraud until his sons told authorities that he confessed. Critics say the SEC did not do enough to follow up on tips from one of Madoff's competitors and for missing a number of other red flags.

There have also been questions about whether FINRA was diligent in its oversight of Madoff's firm.

FINRA said it only has authority over Madoff's broker-dealer business and did not have the authority to examine the books and record of Madoff's investment adviser business.

"There was never any indication in the broker-dealer operation of the fraud that Bernard Madoff allegedly carried out," FINRA said in an emailed statement.

"None of the fraudulent activities that have been alleged deal with the activities of the broker-dealer or come under the jurisdiction of FINRA," it said.

(Reporting by Rachelle Younglai; Editing by Tim Dobbyn)