By MARCY GORDON
Associated Press

WASHINGTON - The internal watchdog at the U.S. Securities and Exchange Commission said Monday that an investigation of the agency's failure to uncover the alleged $50 billion fraud involving Wall Street figure Bernard Madoff will extend broadly to the agency's enforcement operations.

Inspector General H. David Kotz testified Monday afternoon before a House panel examining the Madoff affair and the agency's failure to act despite receiving complaints over a decade.

In prepared testimony, Kotz said his office's probe will go beyond specific issues that SEC Chairman Christopher Cox asked him to investigate. He said that it also will examine the operations of the SEC's enforcement and inspection divisions and will make recommendations.

At the start of the hearing, Democrat Paul Kanjorski questioned whether congressional appropriations had given the agency sufficient resources to do the job. From 1995 to 2007, Congress was under Republican control.

"Clearly, our regulatory system ... failed miserably, and we must rebuild it now," said Kanjorski.

Rep. Spencer Bachus, a Republican, pointed to regulatory gaps rather than the level of congressional appropriations as the reason for the Madoff scandal.

Bachus called for Congress to create a regulatory structure "for the 21st century."

The heavy toll of the Madoff scandal was brought before Congress as the House Financial Services Committee tries to determine how, despite warnings back to at least 1999 to SEC staff members, Madoff continued to operate his alleged pyramid scheme.

"I am a human face on this tragedy," says Allan Goldstein, a retired New York textile distributor who also was testifying at Monday's hearing.

Goldstein, 76, says he lost his entire life savings with Madoff and had to cash in his life-insurance policies to cover his mortgage.

"Everything I worked for over a 50-year career is gone," Goldstein said in an e-mail message from his attorney's firm. He said he had no reason to question the steady returns of 8 percent to 12 percent a year that Madoff's firm told him he was earning.

The Securities Investor Protection Corp. and the trustee handling the liquidation of Madoff's firm said Monday that they mailed more than 8,000 claim forms to customers on Friday. Besides individual investors, others who lost money were big hedge funds, international banks and charities.

The SEC received complaints about Madoff's investment methods over a decade. The House committee is questioning the SEC's internal watchdog as lawmakers try to learn why the regulatory agency failed to detect the alleged investment fraud.

Also Monday, a prosecutor who says Madoff violated bail conditions by mailing about $1 million worth of jewelry and other assets to relatives The prosecutor wants him jailed without bail.

Assistant U.S. Attorney Marc Litt made the request to revoke Madoff's bail at a hearing in federal court. Madoff has been under house arrest.

There was no immediate decision on the government's request.

Madoff's lawyer, Ira Sorkin, described the items as heirlooms that included cufflinks and antique watches. Sorkin said they were not significant assets.

The 70-year-old former Nasdaq stock market chairman was arrested Dec. 11 on securites-fraud charges.

Larry Neumeister contributed to this report.