IF SOMETHING sounds too good to be true, stay well clear. Still, Bernard Madoff, an American financier, managed to get away with an alleged Ponzi scheme for years. One reason is he did it so well.

A search through the Internet reveals what is described as a recent statement Madoff's firm sent one of its individual clients. It looks awfully real, with dozens of trades in November. It stretches credulity that Madoff could have done it all on his own, as he has said.

What is more certain is that investors need to be wary of who they place their money with, regardless of where these firms are based. Fraudsters are not only to be found in the more cowboy of emerging markets; they prowl the high-rise canyons of Manhattan, too. Indeed, it is disturbing that as sophisticated as the United States regulatory framework supposedly is, Madoff's operations should have gone undetected.

Yet, that may be precisely the reason: Construct the fraud well enough and no one would suspect that such a thing could happen in the US.

The Madoff myth only popped as the financial market crisis intensified and clients sought to withdraw their investments. The pyramid crumpled. Indeed, if Madoff had instituted 'gating', a practice sometimes imposed by hedge funds to slow redemption by clients, the fraud could still be lying below the surface.

Why Madoff did not do so is a puzzle. It was almost as though he was growing weary of the massive effort needed to sustain the scam and wanted to be caught. He confessed to two people, believed to be his sons, and is said to have described his investment business as 'basically, a giant Ponzi scheme'.

And what a scheme! The roster of banks, hedge funds and fund-of-funds duped known so far is a Who's Who of the financial world. Equally impressive is the list of individuals caught in the Madoff snare - people who may have a strong case to make against their financial advisers for mis-selling, for failing to perform due diligence.

These are still early days in the investigation, and many questions remain unanswered. How did Madoff operate? Was anyone else involved? What happens now to the millions and maybe billions of dollars in taxes that investors paid on profits that never happened? Given the geographical reach of the scam, this involves many tax jurisdictions.

Finally, people are bound to ask if there are other scams still undetected. While markets have been able to shrug off the case, a fraud of this size hurts confidence in the integrity of markets and financial firms. Right now, that is not the best thing for the financial system anywhere to be faced with.

This article was first published in The Straits Times on December 17, 2008.