Madoff case spurs SEC to revamp whistle-blower policy

— -- Under fire for failing to detect the alleged Bernard Madoff fraud, the Securities and Exchange Commission Thursday announced plans to improve its handling of whistle-blower complaints and enforcement tips.

The announcement came just over one month after Harry Markopolos, a Boston fraud investigator, told Congress the nation's top securities regulator brushed off his repeated warnings that Madoff was operating a massive Ponzi scheme.

The SEC said the Center for Enterprise Modernization, a federally funded research and development center, would review the agency's current procedure for evaluating complaints and recommend ways to centralize and improve the process.

Recently appointed SEC Chairman Mary Schapiro said the review would identify and correct gaps or problems that could "prevent us from ensuring swift and vigorous enforcement."

The announcement, Schapiro's latest move to revitalize the SEC and change policies of predecessor Christopher Cox, didn't mention Madoff. But the context was clear.

"It's a step in the right direction that should make it more likely the SEC will investigate before an issue turns into a multibillion-dollar investment scandal," said Mercer Bullard, president of Fund Democracy, an advocacy group for mutual fund shareholders.

Madoff is under house arrest in New York on $10 million bail following his December arrest for allegedly running a scam with worldwide investor losses as high as $50 billion. He is expected to seek a plea deal with federal prosecutors, who have a March 13 court deadline for filing criminal charges.

Markopolos told the House Financial Services Committee last month that he filed five Madoff complaints with the SEC from 2000 to 2008. One was titled "The World's Largest Hedge Fund is a Fraud." Each time, said Markopolos, the agency took no public action.

"I'm suggesting that if you flew the entire SEC to Boston, sat them in Fenway Park for an afternoon, that they would not be able to find first base," Markopolos said in his Feb. 4 testimony.