It is true that the SEC did not investigate incoming tips from suspecting investors about the Madoff operation. They should have done a better job in evaluating Bernie Madoff and his investment activities. But somewhere in this entire story, I would bet my bottom dollar that politics, more specifically, D.C. congressman played a roll in the lack of oversight.
Remember Enron
and Arthur Andersen 
?
Former SEC Chairman Arthur Levitt went to Congress on many occasions trying to persuade them to make the Accounting and Consulting firms separate entities when administering services to publicly traded companies. Mr. Levitt’s rationale was that there could be a conflict of interest in the advice given. 
For instance, Arthur Andersen was making tens of millions in fees providing consulting work to Enron. They were also the accounting firm used to conduct the audits and annual reports of the company (The accounting work also generated lots of fees for Arthur Andersen).
As Mr. Levitt continued to push this agenda on Capitol Hill, some of the Senators threatened to cut the funding of the SEC in upcoming federal budgets. Subsequent to the these threats we learned that the Senators pushing the hardest against the Levitt agenda were also receiving large campaign contributions from Arthur Anderson. They include Chris Dodd (D: Connecticut) and Joe Lieberman (I: Connecticut).
No legislation ever came of Mr. Levitt’s campaigning. However, two firms were forced to close and are now non-existent, thousands lost their jobs and savings (401K), over $100 million in stock wealth evaporated, a host of federal convictions for securities fraud, and subsequent investigations of other publicly traded firms where it was found to be similar discrepancies between the accountants and consultants (Ex. Worldcom, TYCO, etc….).
With the Bernie Madoff saga, the SPECs will almost guarantee to you that Capitol Hill have their hands in both directly and indirectly. Stick Around!!!
