The SEC knew about Madoff for a long time.
From the WSJ:
Securities and Exchange Commission investigators discovered in 2006 that Bernard Madoff had misled the agency about how he managed customer money, according to documents, yet the SEC missed an opportunity to uncover an alleged Ponzi scheme.
The documents indicate the agency had Mr. Madoff in its sights amid multiple violations that, if pursued, could have blown open his alleged multibillion-dollar scam. Instead, his firm registered as an investment adviser, at the agency's request, and the public got no word of the violations.
Harry Markopolos -- who once worked for a Madoff rival -- sparked the probe with his nearly decadelong campaign to persuade the SEC that Mr. Madoff's returns were too good to be true. In recent days, The Wall Street Journal reviewed emails, letters and other documents that Mr. Markopolos shared with the SEC over the years.
HARRY MARKOPOLOS
When he first began studying Mr. Madoff's investment performance a decade ago, Mr. Markopolos told a colleague at the time, "It doesn't make any damn sense," he and the colleague recall. "This has to be a Ponzi scheme."
For Mr. Markopolos, the arrest last week of Mr. Madoff was something of a vindication after his long campaign. At a certain point, he says, "I was just the boy who cried wolf."
A lawyer for Mr. Madoff declined to comment on Mr. Markopolos's allegations.