Published: Monday, 2 Nov 2009 | 3:57 PM ET

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Newly released documents in the Bernard Madoff case paint a detailed picture of a feckless Securities and Exchange Commission, and an epic scam artist who was constantly amazed he did not get caught.

CNBC.com Bernie Madoff

The documents, released Friday by the SEC following an August request by CNBC under the Freedom of Information Act, include thousands of pages of e-mails, transcripts and internal SEC documents compiled by Inspector General H. David Kotz in his investigation of the SEC's handling of the case. Kotz issued a scathing report in September citing multiple lapses by the SEC in investigations dating back to 1992.

While Madoff's Scam of the Century shocked the world, it appears Madoff was mainly shocked he got away with it so long, according to a jailhouse interview he gave to Kotz on June 17 as he awaited sentencing on 11 fraud counts. In the interview, Madoff says the fact that he did not get caught was "amazing to me." Madoff was not under oath in the interview.

Scott Cohn
CNBC Senior Correspondent

"It never entered the SEC's mind that it was a Ponzi scheme," Madoff says, noting that all investigators would have had to do was contact his supposed counterparties, and they "would've seen it."

The SEC began looking at Madoff as far back as 1992, when investigators shut down an investment business run by accountants Frank Avellino and Michael Bienes who, it turned out, were funneling money to Madoff. Subsequent investigations looked at whether Madoff was using his trading business—which he continues to claim was legitimate—to benefit his investment clients; an illegal practice known as front running. But Madoff says in the interview, "Everything the SEC did prior to 2006 was a waste of time."

• Read: Interview Transcripts With Madoff

By 2006, SEC investigators were looking more closely at allegations by independent fraud investigator Harry Markopolos, who had been complaining as far back as 2000 that Madoff was running a Ponzi scheme. After the scandal broke, Markopolos offered a blistering indictment of the SEC.

"I gift wrapped and delivered the largest Ponzi scheme in history to the SEC," Markopolos told a house subcommittee in February, "and somehow, they couldn't be bothered to conduct a thorough and proper investigation because they were too busy on matters of higher priority."

The new SEC documents suggest the agency did investigate, but they also show staffers were overworked, inexperienced, and in many cases skeptical of Markopolos.

"I have some qualms about a self identified independent fraud analyst, but who knows," writes SEC branch chief Meaghan Cheung in a 2005 e-mail to the staff attorney to whom she has assigned the case.

In the 2009 interview, Madoff also expresses disdain for Markopolos, calling him "a joke in the industry," who was "just jealous" of Madoff's business. But the documents show Markopolos repeatedly warning investigators as far back as 2000 that "the world's largest hedge fund is a Ponzi scheme," since the returns Madoff and his feeder funds were reporting were improbable at best.

• Read: Meaghan Cheung's Email

Other documents point to the SEC's chronic lack of resources. In a January, 2004 e-mail, enforcement attorney Jason Gettinger writes, "of course, we should get out of the business of burning resources to chase Ponzi schemes."

• Read: Jason Gettinger's Email

Madoff suggests his stature in the industry may have helped him navigate the SEC investigations. The former NASDAQ chairman says he "didn't have to tell examiners his role in the industry, because they already knew." Madoff says he had "too much credibility" with the SEC's headquarters staff.

• Slideshow: A Rogues Gallery of Financial Crime

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