Investors may have been duped because Mr. Madoff sent detailed
brokerage statements to investors whose money he managed, sometimes
reporting hundreds of individual stock trades per month. Investors who
asked for their money back could have it returned within days. And
while typical Ponzi schemes promise very high returns, Mr. Madoff’s
promised returns were relatively realistic – about 10 percent a year –
though they were unrealistically steady.
It seems this scheme went on for "years or even decades," which means it lasted longer than many legitimate concerns. Nomura had been searching out international clients for him. Checks and balances were weak:
…because he had his own securities firm, Mr. Madoff kept custody
over his clients’ accounts and processed all their stock trades
himself. His only check appears to have been Friehling & Horowitz,
a tiny auditing firm based in New City, N.Y. Wealthy individuals and
other money managers entrusted billions of dollars to funds that in
turn invested in his firm, based on his reputation and reported
In reality the "fund" simply was not there and now grandmothers have been fleeced. That is a scary lesson about the financial sector as a whole (and prudential regulation) but if it is any comfort an unregulated hedge fund could not have done the same. Those funds hold their portfolios at banks and thus you can check as to whether they actually "exist."