America’s financial regulator is to investigate the conduct of one of its former officials who married the niece of Bernard Madoff as part of an inquiry into how the Securities and Exchange Commission (SEC) failed to detect the world’s largest fraud.

In a statement to Wall Street, Christopher Cox, the SEC chairman, admitted that the $50 billion (£32 billion) Madoff investment scam could have been prevented had the regulator bothered to follow up repeated tip-offs over a ten-year period.

Effectively offering an apology, Mr Cox, said that he had found that “credible and specific allegations” had been “repeatedly” brought to the attention of the SEC but that no recommendation had ever been made to investigate them.

The SEC inquiry will examine the relationship between Mr Madoff’s niece, Shana Madoff, and a senior inspections and examinations official, Eric Swanson, whom she married in 2007. Mr Swanson worked for the SEC for ten years before leaving in 2006.

Pressure has been growing on the SEC over the past week to explain how it could have missed such a huge scam.

Mr Cox’s “troubling” findings about how the SEC operates, showed that it had received tip-offs about Mr Madoff’s investment schemes from as early as 1999. Such an admission raises doubt about the performance of Mr Cox’s predecessors, Arthur Levitt, Harvey Pitt and William Donaldson, each of whom chaired the SEC at some point after 1999. Mr Cox was made chairman in June 2005, a year before Mr Madoff registered with the SEC as a financial adviser. The SEC has admitted that no inquiry into Mr Madoff’s advisory business was conducted even after he registered the operations only two years ago.

Mr Madoff, 70, admitted to his two sons a week ago that he was “finished” and that his investment firm was nothing but a giant Ponzi scheme. He estimated its losses at about $50 billion, making it the biggest fraud in history.

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