TO DESCRIBE Bernard L. Madoff's alleged securities fraud as a Ponzi scheme is a bit unfair to Charles Ponzi, the legendary swindler of the post-World War I era. Their methods were roughly the same: like Ponzi and his "postal reply coupons," Mr. Madoff reported phantom returns from supposed stock market plays, paying his investors off with cash invested by new pigeons. But, while Ponzi cheated people out of millions of dollars, the price tag of Mr. Madoff's con game is a reported $50 billion. Even that spectacular estimate shouldn't be trusted, because it comes from Mr. Madoff himself. Still, there is no question that Mr. Madoff has done epic damage to investors large and small, all over the world. The victims range from leading Spanish, British and Japanese banks, to Hollywood's Steven Spielberg, to lots of far less exalted players -- most pathetically the charities that believed the claim on Mr. Madoff's corporate Web site: "Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark." By the time this is over, "Madoff scheme" may be the new name for mass financial fraud.

This immense rip-off can only erode market confidence at a time when it is already in dangerously short supply. Unlike Ponzi, Mr. Madoff operated in a modern regulatory environment in which numerous authorities, state and federal, were supposed to keep an eye out for such scams. Others in the financial business spotted warning signs early on. A competitor, Harry Markopolos, wrote the Securities and Exchange Commission nine years ago that "Madoff Securities is the world's largest Ponzi scheme." Mr. Markopolos repeated those warnings over the years. Last year, hedge fund adviser Aksia sent a letter to its clients noting a list of irregularities at Madoff Securities, including the fact that it provided only paper trading records, which are easily forged. Mr. Madoff's auditor was an obscure three-employee accounting firm. But the regulators slept; several SEC reviews over the years found nothing but technical violations.

"Deeply troubling" is SEC Chairman Christopher Cox's appropriate assessment of his agency's failure to catch the Madoff fraud, which seems to have occurred not only on his watch, but also on that of two predecessors. Hindsight is 20-20, and even when someone blows the whistle, it can be devilishly hard to unmask a skilled con man, especially one like Mr. Madoff, who was a former chairman of the board of Nasdaq and enjoyed relationships with financiers, philanthropists and politicians the world over. Nevertheless, if this scandal demonstrates anything, it is how easily even the most sophisticated investors can be gulled -- and that the general public needs alert and aggressive government regulation. Regulators let the people down in this case, big-time. That must be investigated as urgently as Mr. Madoff's alleged crimes.