The Bernard Madoff (pronounced made-off) scandal has become the focal point for those asking for sweeping financial oversight reforms. Even as the US Congress roundly criticised the Securities and Exchange Commission (SEC) for its failure to detect the giant $50-billion fraud, the lawmakers sought to determine whether the agency required additional funding and staff to function efficiently. (See: Former NASDAQ chairman charged with $50-billion securities fraud)

The Madoff case has emerged as a rallying point for Democrats intent on overhauling financial regulation this year, with the help of the incoming Obama administration as it moves to stabilize the troubled US financial system. The scandal should be the "final prod" for reform of the financial regulatory structure, former SEC Chairman Arthur Levitt wrote in the Wall Street Journal on Monday.

At the first hearing of the Financial Services Committee on the alleged fraud on Monday, both Republican and Democratic House members said the fraud reflected deep, systemic problems at the SEC.  Representative Spencer Bachus, the senior Republican on the panel, called for Congress to create a regulatory structure "for the 21st Century" but cautioned against rushing to do so.

"Clearly our regulatory system has failed miserably and we must rebuild it now," said Representative Paul Kanjorski, a Democrat who chaired the hearing. The SEC must report what happened, ''so we can do our jobs and make sure the laws and authorities are in place to see that this never happens again…Our regulatory system has failed miserably and we must rebuild it.''

SEC Inspector General H David Kotz said his staff will issue reports on a ''rolling basis'' within months as it examines how inspections and probes involving Madoff since 1992 overlooked what may be the biggest such fraud in history. He said he would examine complaints lodged with the SEC about Madoff's business over the years, as well as agency staff's contacts and relationships with the Madoff family.

Kotz said the internal inquiry will examine how Madoff's status, developed while sitting on SEC advisory committees, leading Securities Industry Association panels and serving as chairman of the NASDAQ Stock Market, ''may have affected commission decisions regarding investigations, examinations and inspections of his firm.'' (See: SEC to investigate in-house flaws to nail Madoff)

"It is our opinion that the matters that must be analyzed regarding the SEC and Bernard Madoff may go beyond" issues targeted for internal inquiry by SEC Chairman Christopher Cox, Kotz said in written testimony given to members of committee.

Senate Banking Committee Chairman Christopher Dodd and Senator Richard Shelby, the panel's top Republican, said they would conduct their own examination. Dodd, a Connecticut Democrat, and Alabama's Shelby sent a letter to the SEC Chairman requesting copies of all complaints the SEC received, reports on investigations and internal e-mails that mentioned Madoff or his firm. They set a 22 January deadline.