[tsotha]

>To spot a Ponzi scheme you only need to look at the balance sheet, not?

No, actually. This is wrong. You can't spot a clever Ponzi scheme if the person who provides the balance sheet is willing to put down false information.

As an auditor all you can do is correlate the bits of information you have. If the criminal is intelligent you won't spot anything until it's too late.

The "warnings" they got were that Madoff's fund was making money too consistently. That's useless.

[_yosefk]

Well, you can go to the bank where he actually keeps the securities if you don't trust the declarations. His bankers for instance were tipped off by his balance sheet and shorted him. Why couldn't the SEC look at the real balance sheet as maintained by the bank(s)?

As to the warnings being useless - you mean that the likelihood of such warnings does not correlate with the real state of things enough to justify action? As in, every legitimate money manager is suspected by many competitors of being a fraud and the SEC is overwhelmed with meaningless warnings to that effect? I doubt it somehow.