U.S. regulators, trying to unravel the breadth of Bernard Madoff’s alleged $50 billion fraud, have found evidence of misconduct stretching back to at least the 1970s, two people familiar with the inquiry said.

Madoff’s investment advisory business, where he allegedly operated the biggest Ponzi scheme in history, is now estimated to have had more than 4,000 customers, the people said, declining to be identified because the inquiry isn’t public. An advisory unit Madoff registered with the Securities and Exchange Commission claimed in a January filing to have no more than 25 clients. People familiar with the probe said Dec. 14 he also ran a secret unregistered business.

The Madoff case is fueling efforts by President-elect Barack Obama and Congress to overhaul oversight of brokerages and investment advisers. The SEC will likely also examine whether hedge funds investing with Madoff performed the due diligence promised to clients, two people familiar with the agency’s concerns said.

SEC Chairman Christopher Cox said Dec. 16 the agency failed to act on “credible, specific” allegations about Madoff dating back at least to 1999. Madoff had kept several sets of books, and provided misinformation about his advisory business to investors and regulators, Cox noted.

In its 1992 lawsuit, the SEC claimed accountants Frank Avellino and Michael Bienes began raising money in 1962 and placing it with Madoff while promising investors returns of 13.5 percent to 20 percent, according to court documents obtained by Bloomberg. As of October 1992, their firm, Avellino & Bienes, had issued $441 million in unregistered notes to 3,200 people and entities, court papers say. They invested solely with Madoff, who opened his business in 1960.

Interesting how this scheme went undetected, but yet they can spot a crook a mile off when he is in the middle class.  Funny how that works, huh?