Bernard Madoff thought his vast fraud was going to be exposed two years before he was finally caught, but regulators failed to act.

The Securities and Exchange Commission (SEC) was investigating his business in 2006 and asked to see the trading account where the fraudster claimed to house clients' investments. The account was actually empty, leading Madoff to panic. However, the SEC never followed up on its request.

“I thought it was the end game, over,” Madoff recalled to investigators after his eventual arrest. “Monday morning they'll call and this will be over... and it never happened.”

He was “astonished”, he said.

In an excoriating internal report from the inspector general of the SEC, it emerged that the regulator had focused its attention on rumours Madoff was front-running — a form of insider trading based on knowledge of big forthcoming share purchases and sales. It should instead have followed up on the many tip-offs it received that Madoff's empire was a giant pyramid scheme.

The report also found the SEC only put junior staff on the Madoff case and he intimidated them by referring to his high-level friends at the regulator.