(Bloomberg News)  High fees paid to the trustees of bankrupt Lehman Brothers Holdings Inc.'s brokerage and of Bernard Madoff's collapsed firm might deplete the $2.5 billion fund of the Securities Investor Protection Corp., according to a report by the Securities and Exchange Commission's Inspector General.

The report assesses how well the SEC is doing in overseeing SIPC, which liquidates bankrupt brokerages to pay creditors. There is "significant criticism and concern" over the brokerage trustees' fees in the Lehman and Madoff bankruptcies, according to the report. The SEC must make "systematic" inspections to ensure cost-effective liquidations, it said.

Lehman brokerage trustee James Giddens and his law firm were paid about $108 million in the 24 months from Lehman's September 2008 bankruptcy through September 2010, the report said, citing court documents. Madoff trustee Irving Picard and his law firm were paid about $102 million in the 21 months from December 2008, when Madoff was arrested, through September 2010, it said.

As the liquidations are far from over, "fees paid to date for both the Lehman and Madoff liquidations are a mere fraction of the amounts that will eventually be sought," the report said.

Last Inspection

The last time the SEC inspected SIPC thoroughly was in 2003, with a follow-up in 2005, it said.

"In the SEC's inspection of SIPC, the SEC identified several deficiencies in SIPC's operations regarding its controls over fees, an improperly denied claim, internal policies and guidance, education initiative and funding options," it said.

Yet the SEC failed to set up a review schedule and scope for inspections, the Inspector General said. As a result, 14 liquidations from 2003 until today haven't been scrutinized by the SEC, according to the audit report.

SIPC's board "constantly monitors the SIPC fund to assure that the corporation has sufficient assets to fulfill all of SIPC's statutory missions," Stephen Harbeck, SIPC's president, said in an e-mail. Adding to resources, "SIPC's members are currently paying assessments of one quarter of one percent of their net operating revenues to SIPC," he said.

Neither Amanda Remus, a Picard spokeswoman, nor Jake Sargent, a Giddens spokesman, responded immediately to e-mails requesting comment.

John Nester, an SEC spokesman, said the SEC's views are contained in its Inspector General's report. The SEC has no plans to arrange a SIPC inspection until the Lehman and Madoff cases are finished, it said in the report.