BOSTON/NEW YORK, (Reuters) – U.S. securities  regulators missed “numerous” red flags that may have led to  Bernard Madoff’s $65 billion Ponzi scheme and never did a  “thorough and competent” probe despite complaints dating to  1992, a federal watchdog has concluded.

The U.S. Securities and Exchange Commission’s inspector  general said in a blistering report that despite five probes  and having caught Madoff in “lies and misrepresentations,” the  SEC failed to follow up on inconsistencies.

“Despite numerous credible and detailed complaints, the SEC  never properly examined or investigated Madoff’s trading and  never took the necessary, but basic, steps to determine if  Madoff was operating a Ponzi scheme,” Inspector General David  Kotz wrote.

Kotz said the SEC’s “most egregious” lapse was its failure  to verify Madoff’s purported trading with any independent third  parties, even after it took testimony from Madoff in May 2006.

Madoff later admitted that he thought it was “game over”  after testifying to having cleared his trades through the  Depository Trust Co, part of the U.S. Federal Reserve, and  provided his account number. He said he was “astonished” that  the SEC did not follow up.

Kotz quoted one senior-level SEC examiner as saying,  “Clearly, if someone … has a Ponzi and they’re stealing  money, they’re not going to hesitate to lie to create records,”  and thus “some independent third-party verification” such as  through the DTC would be essential.

He said the SEC had made a “surprising discovery” earlier  this decade that Madoff’s hedge fund business was making far  more money than his better known market-making business, but no  one thought this was a “cause for concern.”

Madoff pleaded guilty in March to orchestrating the Ponzi  scheme, which used money from new investors to pay old ones, He  is serving a 150-year prison term.

Prosecutors have said that Madoff appeared to be rewarding  his customers with steady returns, but he was faking their  account statements and did not place trades on their behalf.

Kotz said SEC staffers were at times too inexperienced or  narrowly focused, and resisted whistle-blowers’ efforts to  expose Madoff.