Regulators on defensive over Madoff

WASHINGTON - Government and industry regulators were put sharply on the defensive yesterday at a Senate hearing over their failure to uncover the more than a decadelong, multibillion-dollar fraud scheme allegedly carried out under their noses by Bernard L. Madoff.

Members of the Senate Banking Committee demanded answers and accountability. They were scarcely satisfied with explanations given by two high-ranking officials of the Securities and Exchange Commission and the interim chief executive of the securities industry's self-policing organization.

And they said the Madoff affair clearly showed the need for an overhaul of the patchwork system governing regulation of the financial markets - something the new Congress appears to be moving toward.

"Madoff's fraud was so immense and obvious, and took place over such a long period of time, it is simply inexplicable how the SEC missed it," declared Senator Charles Schumer, a New York Democrat.

The banking committee chairman, Senator Christopher Dodd, a Connecticut Democrat, demanded of SEC enforcement director Linda Thomsen and the other regulators, "What's happened here?"

Thomsen faced grilling along with Lori Richards, who heads the SEC's inspections division, and Stephen Luparello, the interim chief executive of the Financial Industry Regulatory Authority.

The industry regulator was headed until last month by Mary Schapiro, President Obama's new SEC chairwoman.