On Tuesday night, SEC Chairman Christopher Cox ordered an internal investigation of what went wrong and offered a no-holds-barred critique of the conduct of agency staffers. Specific allegations regarding Madoff's financial wrongdoing going back to at least 1999 were repeatedly brought to the attention of SEC staff, Cox said.
Madoff, a heralded investment manager and former head of the Nasdaq Stock Exchange, is accused of bilking investors -- including charitable foundations and other institutions -- of up to $50 billion through illegal investment schemes.
"I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them," Cox said in a written statement, according to the Associated Press.
Cox blasted SEC regulators for not launching a formal investigation into Madoff's activities, leaving the staff to rely on information voluntary supplied by Madoff's staff, as opposed to using subpoena power to compel more details.
Cox said he has ordered a "full and immediate review" of the allegations surrounding Madoff -- a review that will cover SEC internal policies as well.
"The investigation should also include all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by staff regarding the firm," Cox's statement reads.
The SEC chief said Madoff kept several sets of books and false documents, and provided false information involving his investment advisory activities to investors and to regulators.
Cox's strong statement is likely to fuel dissatisfaction in Congress with the SEC and stir questions on whether the agency has lost its ability to regulate activities on Wall Street.
"They were asleep at the switch," Sen. Charles Grassley, R-Iowa, said of the SEC's failure to uncover Madoff's alleged fraud, the AP reported.
Sen. Jack Reed, D-R.I., who chairs the Senate banking panel that oversees the SEC, said the Madoff issue "illustrates the lack of credible enforcement over several years by the SEC." He criticized the agency's "lack of a strong commitment to be vigilant."
However, some in the financial industry warned against judging the SEC too quickly on the Madoff matter.
Carl Loewenson, a partner in the New York law office of Morrison & Foerster, told Reuters the SEC may not completely be at fault for not catching Madoff's activities sooner. If Madoff was able to fool sophisticated hedge funds, foundations and seasoned investors, he probably would have been able work around regulators too.
Bail conditions for Madoff, Madoff, who is free on a $10 million bond, have been modified to include electronic monitoring, according to court documents released Wednesday.
U.S. District Court Magistrate Judge Gabriel Gorenstein said Madoff's wife was required to surrender her passport by noon on Thursday and said a hearing scheduled for Wednesday was canceled.