We know that there will always be swindlers in the world, particularly when money is at stake. What is surprising in the Madoff case is the magnitude and durability of the confidence game and the wealth and importance of many of the investors who went along for the ride, based largely on personal trust.

Madoff will go down in history along with Charles Ponzi, who gave his name to these pyramid schemes in the 1920’s. Ponzi may have been the first, but Madoff was the biggest. Look up Charles Ponzi in Wikipedia.

The US financial regulatory body will launch an in-house investigation into why it failed to detect Bernard Madoff’s massive alleged fraud, despite almost a decade of warning signs.

“The Securities and Exchange Commission, a once-proud agency with an impressive history as Wall Street’s top cop finds itself increasingly conducting autopsies of leading financial institutions after failing, in the first instance, to perform adequate biopsies.

The issue arises as to whether investors in such a fund should be insured in any way, not against losses resulting from market activity (those are business risks), but from losses through embezzlement, for example, if someone stealing the corpus of their fund, or if there is no fund.

Securities and Exchange Commission chairman Christopher Cox said the SEC “has learned that credible and specific allegations regarding Mr Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff”.
“But (they) were never recommended to the Commission for action,” Cox said in a statement on Tuesday.

Madoff, 70, is the alleged mastermind of a $US50 billion ($A71.9 billion) fraud that is shaking financial institutions worldwide.

“I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations,” Cox said.

“A consequence of the failure to seek a formal order of investigation from the Commission is that subpoena power was not used to obtain information, but rather staff relied upon information voluntarily produced by Mr Madoff and his firm.”

Cox said he had “directed a full and immediate review of the past allegations regarding Mr Madoff and his firm and the reasons they were not found credible, to be led by the SEC’s Inspector General”.

Madoff is free on a $US10 million ($A14.4 million) bond, but will be in court on Tuesday to establish whether he has met bail conditions set after his arrest last week.