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The world's biggest fraud could have been averted if the Securities and Exchange Commission (SEC) ha

The world's biggest fraud could have been averted if the Securities and Exchange Commission (SEC) had acted on numerous warnings about Bernard Madoff's financial impropriety years ago, the regulator's chairman admitted last night.

Christopher Cox, the chairman of the SEC, effectively admitted mea culpa over the scandal after conceding that tip-offs were repeatedly made to the investors' watchdog but never resulted in any investigation.

Mr Cox said that in less than a week of checks made into the regulator's oversight of investment businesses run by Bernard Madoff, he had found that "credible and specific allegations" had been "repeatedly" brought to the attention of the SEC but that no recommendations had ever been made to investigate the accusations.

The admission comes a week after Bernard Madoff, a 70 year old financier, admitted to his two sons that he was "finished" and that his investment firm was nothing more than a giant Ponzi scheme.

He also admitted to his sons, who worked for him, that he believed that losses arising from his financial wrong-doing amounted to around $50 billion, representing the biggest fraud in history.

His investment firm, which has since been forced into liquidation, has triggered billions of dollars worth of losses among the world's biggest financial institutions, charities, state pension schemes, and personal savings.

While it emerged last night that some of the allegations about Mr Madoff's wrongdoing had been made as far back as 1999, well before Mr Cox was appointed as head of the SEC in June 2005, the 70 year old investor had only registered as a financial adviser in 2006.

The SEC has separately admitted that no inquiry into Mr Madoff's advisory business was conducted even after he registered the operations just two years ago.

Pressure has been growing on the SEC over the last week to explain how the Wall Street regulator could have missed a collossal scam.

Christopher Dodd, the chairman of the Senate Banking Committee, yesterday demanded information from the SEC to ascertain how such a fraud could have taken place, a scandal which was only discovered because Mr Madoff's sons contacted the Federal Bureau of Investigation.

As a result of the "apparent multiple failures," Mr Cox has asked the agency's inspector general to investigate contacts between SEC staff and Mr Madoff and his family.

The inquiry is expected to include the relationship between Mr Madoff's niece Shana Madoff and a senior inspections and examinations official, Eric Swanson, whom she married in 2007.

Mr. Swanson worked at the SEC for 10 years before leaving in 2006.

As Democrat chairman of the committee, Mr Dodd has the power to subpoena key officials from the SEC, including the current chairman, Mr Cox.

In such an event, they would be forced to answer questions in public testimonies to account for their behaviour. Mr Cox is already in his final days of office given that new US Presidents appoint their own chairman of the financial regulator.

Some regulators have speculated that Mr Madoff may have run a second investment advisory business which was never registered with regulators.

However, the scandal remains painfully embarassing to the SEC because Mr Madoff once served on one of their advisory committees.

As hostility grew against the SEC and its failure to detect the alleged fraud, a scheduled court hearing at which Mr Madoff was expected to fulfil final conditions of his bail agreement, was adjourned until 2pm local time today (7 pm UK time).

Mr Madoff, who was released on $10 million bail at the end of last week, is scheduled to return to the 500 Pearl Street court house in downtown Manhattan to complete court papers today.

Under the terms of his bail, he is not permitted to stray far outside the New York state boundaries. It is believed that he is staying at his smart Upper East Side apartment, located on the corner Lexington Avenue, and just blocks away from central park.

Over the last few years, the financier built up an investment business where he told clients - who had to invest a minimum of $1 million - that he was buying blue chip stocks and treasury bonds on their behalf and hedging against potential losses with options contracts.

The regulators who are belatedly investigating the alleged fraud, who include the SEC and the Federal Bureau of Investigation, believe that Mr Madoff did not make any investments on his clients' behalf but took cash from new customers to pay the 12 per cent returns he had promised existing clients.

Such a scheme is only sustainable so long as there are sufficent new clients entering the scheme to provide fresh capital.

On Monday evening, a US judge liquidated the investment business and Mark and Andrew - Mr Madoff's sons - issued a statement through their lawyer insisting that they were victims of the scheme rather than perpetrators.

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