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Business Comment

Stephen Foley: Shocking tale of the cowed regulators

US Outlook: We still await publication of the full in-house investigation by the Securities and Exchange Commission into the agency's failure to spot that Bernard Madoff was running a $65bn (£40bn) Ponzi scheme under their very nose. But even the executive summary is breathtaking stuff.

The catalogue of incompetence is not the surprise. The agency has long seemed content to train an army of paper-pushing solicitors, interested only in box-ticking "compliance", when they should in fact be training staff to be dogged private detectives.

The most shocking revelation is how staff are in thrall to the dazzling brilliance of Wall Street, or cowed by the power of its main players. So often they took Madoff's word at face value. They dismissed Harry Markopolos, the sleuth who called Madoff a Ponzi scheme back in 2005, as a nut, because he was not a Wall Street insider.

A senior executive in Washington told junior members of the investigative team in New York to remember that Madoff was "a very well-connected, powerful person". Madoff spent so much of his time when inspectors were around namedropping their seniors precisely because he assumed it would be effective.

There are powerful echoes of the complaint that the SEC examiner Gary Aguirre made last year, when he said he had been told to lay off his investigation of Pequot Capital and its well-connected boss Art Samberg. He was sacked. Only now do Pequot and Mr Samberg now look likely to be charged.

The SEC says it is overhauling its training and beefing up its powers of subpoena following the Madoff case. The inspector-general's report suggests it will be a long process. If ever there is a dossier that proves regulatory capture, it is this.