EXPLAINER: Charmed by Madoff, SEC later tightened its rules

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Copyright 2009 The Associated Press. All rights reserved.

FILE - In this March 10, 2009, file photo, former financier Bernie Madoff leaves federal court in Manhattan, in New York. Madoff, the financier who pleaded guilty to orchestrating the largest Ponzi scheme in history, has died in prison, a person familiar with the matter tells The Associated Press. (AP Photo/David Karp, File)

WASHINGTON – Until Bernie Madoff’s scheme came crashing down and the biggest Ponzi scheme in Wall Street’s history came to light, he appeared as a charming wizard with a Midas touch. His investment advisory business attracted a devoted legion of clients, including A-list celebrities, rewarding them with steady returns that defied market fluctuations.

But he not only conned investors, he seduced regulators. The Securities and Exchange Commission esteemed him as a Nasdaq Stock Market chairman and prominent Wall Street figure — and failed to detect his fraudulent scheme despite receiving warnings and credible complaints over 10 years. After it was exposed in December 2008, a shaken SEC scrambled to put controls in place to prevent such episodes from recurring and uncover them early.

Madoff was sentenced to 150 years in jail for his crimes. He died behind bars Wednesday at age 82.

A look at federal regulators’ actions with regard to Madoff before his conduct became publicly known and afterward with an eye to prevention:

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WHAT WAS MADOFF’S RELATIONSHIP WITH THE SEC?

For years, Madoff was a bright star in the SEC’s constellation, a legendary investment manager with celebrity clients, as well as multitudes of ordinary investors. He was chairman of the Nasdaq Stock Market in 1990, 1991 and 1993. He sat on SEC advisory committees.

All the while, the financier was running a multibillion-dollar Ponzi scheme: the classic swindle in which early investors are paid with later investors’ money rather than actual profits on their investments. By all accounts, Madoff's scam wasn’t terribly sophisticated or high-tech, utilizing phony account statements sent to clients, for example. But it wiped out thousands of people’s life savings.