Anger at the US Securities and Exchange Commission (SEC) has been outdone only by anger against Madoff himself since his arrest last week and the spectacular discovery of an allegedly a 50-billion-dollar fraud.

In nominating Mary Schapiro as new head of the SEC, president-elect Barack Obama says the Madoff debacle "reminded us yet again of how badly reform is needed when it comes to the rules and regulations that govern our markets."

Investors and the public are also asking why the SEC failed to see such a gigantic train wreck coming.

Adding to the incredulity are revelations that some in the financial community were trying to warn the SEC years ago.

The Wall Street Journal published a front page article Thursday about the nine-year crusade led by Harry Markopolos, a rival investor to Madoff and later a fraud investigator.

Markopolos believed early on that Madoff was running a Ponzi scheme in which the money from new investors is siphoned off to pay returns to existing clients.

Tasked by his own bosses with matching Madoff's amazingly high and consistent returns of about 12 percent annually, Markopolos says he realized that Madoff must be cheating.

On the basis of his allegations the SEC opened an enquiry on January 4, 2006, interviewing Madoff and his assistant, as well as a representative from Fairfield Greenwhich Group, which was one of his main clients and now is one of his main victims.

The SEC found that Madoff personally "misled the examination staff about the nature of the strategy" used by the Fairfield funds and other hedge-fund accounts, and also "withheld from the examination staff information about certain of these customers' accounts," according to the Journal.

But finally, the SEC closed the case "because those violations were not so serious as to warrant an enforcement action."

This Tuesday, current SEC chief Christopher Cox announced an internal enquiry into the failure to detect Madoff's alleged scheme despite warnings that dated as far back as 1999.

A former SEC lawyer, Robert Fusfeld, told the website Talking Points Memo that regulators had overlooked at least three issues:

-- Madoff's huge investment business was audited by an obscure three-person accountancy firm outside New York.

-- Madoff had potentially over-cozy links to his investors.

-- The management software he used was a mystery.

Former Barron's economic correspondent Erin Arvedlund recalls writing an article in 2001 titled, "Don't Ask, Don't Tell."

The article questioned why Madoff "gave up hundreds of millions of dollars" by not charging the typical fees on investments, and "why he pressured investors to never reveal they had money with him, and why no one could understand how he made money."

Arvedlund says she approached numerous analysts and none were able to explain Madoff's methods.

That same year, Michael Ocrant wrote in the hedge fund journal MAR/hedge of being "baffled" by Madoff's performance.

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