SEC proposes changes to prevent another Madoff

— -- The Securities and Exchange Commission's internal watchdog on Tuesday recommended more than 50 steps to strengthen the agency's enforcement and compliance divisions and prevent a repeat of the failures that let Bernard Madoff's Ponzi scam continue operating for years.

SEC Inspector General H. David Kotz, who earlier this month detailed the agency's mishandling of repeated tips and warnings about Madoff, said the changes are needed to rebuild the ability and image of the nation's top securities regulator.

"The strength of our capital markets relies on investor confidence, which in turn depends on vigorous regulatory oversight," Kotz's office wrote in one of two reports that outlined training and investigative recommendations. "Investors will only be confident in entrusting their savings with these entities when they have confidence that the SEC's oversight is vigorous and competent."

Kotz issued the recommendations after his investigation concluded that the SEC missed at least six chances to stop a multibillion-dollar scam that victimized thousands of charities, celebrities and average investors. The SEC assigned inexperienced and undertrained staffers to investigate Madoff, focused the probes too narrowly and failed to seek independent verification for suspicious explanations from the financier, the investigation found.

Madoff pleaded guilty to fraud and other charges in March. He's now serving a 150-year prison sentence.

The changes proposed by Kotz would supplement new protocols ordered by SEC Chairman Mary Schapiro, who took office after Madoff's arrest last December. The recommendations, 21 for the agency's enforcement division and 37 for its office of compliance inspections, include:

•Establishing formal guidance for evaluating complaints about Ponzi schemes and other illegal scams, and training SEC staffers on how to investigate them.

•Subjecting all complaints and tips to reviews by at least two people with experience in the subject area before deciding against taking further action.