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The SEC had the authority to investigate Madoff’s investment business, which managed billions of dollars for wealthy investors and philanthropies. Financial analysts raised concerns about Madoff’s practices repeatedly over the past decade, including a 1999 letter to the SEC that accused Madoff of running a Ponzi scheme. But the agency did not conduct even a routine examination of the investment business until last week.

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Others said that the SEC should have flagged Madoff for examination no later than the moment he registered as an investment adviser, in 2006, because of the history of complaints against his firm and because of its unusual characteristics. These included Madoff’s history of smooth earnings — above 10 percent a year, every year — and his company’s reliance on a small auditing firm that had no other large Wall Street clients.

Aksia, a New York-based consulting firm that advises institutional investors about hedge funds, found that Madoff’s auditor worked out of a 13-foot-by-18-foot office in Rockland County, N.Y., with only three employees. The employees of the firm, which had only Madoff as a client, included a 78-year-old living in Florida and a secretary, Aksia said it discovered. The auditor, Friehling and Horowitz, did not respond to a request for comment.

“If it’s true that the SEC had begun receiving warnings in 1999, then even if they did nothing before then, surely when he registered with them in 2006, he should have gone to the top of their list,” said Barbara Roper of the Consumer Federation of America.

Madoff avoided scrutiny despite the dogged bell-ringing of a Boston accountant, employed by another investment firm, who repeatedly accused Madoff of breaking the law in a series of letters to the SEC that began in 1999. The accountant, Harry Markopolos, said he sent his most recent letter in April.

A former SEC enforcement official said the letters should have raised red flags for regulators.

He said that investigating a Ponzi scheme is not difficult: The agency can simply demand proof that the investment adviser holds the amount of money he claims to hold. And he added that regulators also should have noticed that Madoff was audited by a tiny company with no reputation. He said there are only a few accounting firms with the sophistication to audit an investment adviser that, at the time of registration with the SEC, reported $17 billion on assets.

In an Australian and possibly world first, two lawyers have won a court order to allow them to serve a default judgment through Facebook.

After failing to serve the court documents personally, lawyers Mark McCormack and Jason Oliver tracked down the debtors’ Facebook page.

They were granted permission in the ACT Supreme Court to serve the default judgment through a Facebook email to the debtors.

“We don’t know of any other lawyer who has used Facebook in this way,” said Mr McCormack, of Meyer Vandenberg Lawyers.

“We got the idea ourselves in the course of looking at alternative methods of bringing the matter to the defendants’ attention.

“They weren’t available at their residence. They no longer worked at the place given in some documents as the last place of their employment.”

Mr McCormack said they had to convince the court that the service of the default judgment by Facebook had a reasonable prospect of success and that other methods of personal service had failed.

“This is really a method of last resort in circumstances where we’re unable to effect service personally,” he said.

“The Facebook profiles showed the defendants’ dates of birth, email addresses and friend lists — and the co-defendants were friends with one another.

“This information was enough to satisfy the court that Facebook was a sufficient method of communicating with the defendants.”

A default judgment is given to someone if they do not appear in court.

The warships will visit Havana on December 19-23, the navy said, continuing a tour that has already taken in US foes Venezuela and Nicaragua and seen the ships pass through the Panama Canal for the first time since World War II.

“This will be the first visit to Cuba by Russian warships since the Soviet era,” the Russian naval headquarters said in a statement.

The destroyer Admiral Chabanenko and two other ships already held exercises with Venezuela’s navy in the Caribbean Sea last month.

The naval manoeuvres close to US waters are seen as a riposte to Washington’s own moves in Russia’s Soviet-era sphere of influence, including in the Black Sea.

US officials have said they see no military threat from Russia’s naval manoeuvres but continue to keep a close eye on the situation.

Firms managing money on Mr. Madoff’s scale would typically have hundreds of people involved in these administrative tasks. Prosecutors say he claims to have acted entirely alone.

“Our task is to find the records and follow the money,” said Alexander Vasilescu, a lawyer in the New York office of the Securities and Exchange Commission. As of Sunday night, he said, investigators could not shed much light on the fraud or its scale. “We do not dispute his number — we just have not calculated how he made it,” he said.

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Even before Madoff collapsed, some employees were mystified by the 17th floor. In recent regulatory filings, Mr. Madoff claimed to manage $17 billion for clients — a number that would normally occupy far more than the 20 or so people who worked on 17.

One Madoff employee said he and other workers assumed that Mr. Madoff must have a separate office elsewhere to oversee his client accounts.

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Fairfield boasted about its investigative skills. On its Web site, the firm claimed to investigate hedge fund managers for 6 to 12 months before investing. As part of the process, a team of examiners conducted personal background checks, audited brokerage records and trading reports and interviewed hedge fund executives and compliance officials.

In 2001, Mr. Madoff called Fairfield and invited the firm to inspect his books after two news reports questioned the validity of his returns, according to a person close to Fairfield. Outside auditors hired to inspect Mr. Madoff’s operations concluded that “everything checked out,” this person said.

But, according to the Federal Bureau of Investigation, the 70-year-old could not implement his plan before his huge pyramid scheme – whose 10-12% annual returns had attracted top-flight investors around the globe – collapsed with losses of at least $50bn.

His once-devoted followers were today still counting the cost of their investment in the funds run by Madoff. Investors in his native US as well as the UK, Spain, France, Italy, Switzerland and Japan appear to be caught up in the alleged scam.

Spanish bank Santander announced last night that it had exposure to Madoff Securities of €2.33bn (£2.1bn), of which €2.01bn was invested for institutions and private banking clients outside Spain, through an Ireland-registered subsidiary of its Optimal fund.

Other possible victims include Royal Bank of Scotland, which is 58% owned by the UK taxpayer, Alliance & Leicester and parts of Bradford & Bingley, and hedge funds such as Man Group, which has an estimated exposure of $240m.

Thousands of wealthy individuals, largely from Jewish communities in New York and Florida, were also expected to turn to their lawyers as news spread that Madoff had been arrested, charged with fraud and released on a $10m bond after apparently confessing to his two sons, Mark and Andrew, and FBI special agent Theodore Cacioppi.

The highest profile loser in the UK so far is Nicola Horlick, the City fund manager whose investment firm, Bramdean, had almost 10% of its assets invested with Madoff. This in turn leaves Horlick’s investors, such as local authority pension funds in Merseyside and Hampshire, and property tycoon Vincent Tchenguiz, potentially exposed to the unravelling scandal.

Swiss private bank Reichmuth Matterhorn admitted yesterday it had lost $327m, amid speculation that the total bill in Switzerland could be much higher. US hedge funds are also affected as well as prominent US business executives.

As investigators from US regulator the securities and exchange commission ploughed through the records at the New York headquarters of Bernard L Madoff Investment Securities, they faced accusations last night that they had not examined his books since he registered the firm in September 2006. The Financial Services Authority, the UK watchdog, was thought to be keeping abreast of the situation.

Madoff is himself regulated by the FSA, along with his two sons, his brother Peter and six other registered individuals, though his eponymous London-based offshoot. However, Stephen Raven, chief executive of London-based Madoff Securities International, said the firm was “not in any way part of” the New York company caught up in the alleged scam.

Unravelling the Madoff investment scheme could take months as he faces questions from both the FBI and the SEC, which has filed separate civil charges.

In a statement signed by Cacioppi, Madoff is quoted as saying that he “paid investors with money that wasn’t there”, that he was “broke” and “insolvent”, and “it could not go on”.

Madoff’s alleged scam appears to have started to unravel when investors feeling the pain of the credit crunch put in claims for redemptions of $7bn – a sizable sum for a firm that claimed to have $17.1bn under management. Last Tuesday he stunned a senior colleague – believed to be one of his sons – with the revelation that he intended to pay bonuses in December rather than February. When challenged, and appearing under “great stress”, Madoff arranged a meeting in his Manhattan apartment where he made the startling confession: “It’s all just one big lie.”

He said he was “finished”, had “absolutely nothing” and his investment firm was “basically a giant Ponzi scheme” – a type of fraud invented by Charles Ponzi in the US after the first world war which involves disbursing “returns” to investors out of money from new entrants.

He said he had planned to hand himself over to the authorities but first wanted to divide up the $200m to $300m he had left among selected employees, families and friends – hence the need to pay bonuses early. The confession which was apparently made to his sons was reported to the authorities and the distribution of assets never took place.

He is due in court on Friday. His lawyers have said they “will fight to get through this unfortunate set of events”. The blame game has already begun. Horlick has attacked a “systemic failure of the regulatory and securities markets regime in the US”.

“It is astonishing that this apparent fraud seems to have been continuing for so long, possibly for decades, while investors have continued to invest more money into the Madoff funds,” she said.

Pawn shop owners see strong business across the country, even in unexpected locales like Beverly Hills, the mecca of luxury living and shopping.

“Banks aren’t lending so people are coming here for short-term loans against collateral like diamonds, watches and other jewelry,” said Jordan Tabach-Bank, CEO of Beverly Loan Co, self-described “pawnbroker to the stars.”

“I do see my share of actors, writers, producers and directors,” he said, but also cited more visits from white-collar professionals and especially business owners struggling to meet payroll obligations.

“We still do the five-, six-figure loans to Beverly Hills socialites who want to get plastic surgery, but never have we seen so many people in desperate need of funds to finance business enterprises,” he added.

In the 70 years of the family business, Beverly Loan, which usually charges 4 percent monthly interest on loans, has never loaned so much as it has in the past few months, he said.

“We’re a lot easier to deal with than a bank,” he said from his office on the third floor of a Bank of America building near Rodeo Drive. An armed security guard watches over the reception, where case after case is filled with precious gems.

It’s less glamorous at Mo Money Pawn, located in the grimy area of central Phoenix, where struggling building contractor Robert Lane waited for the shop to open its doors so he could pawn a table saw he bought for $900.

“It’s to get ahead and pay off some of the bills,” he says standing outside the store, where he hoped to get $300 for a cherished workshop tool he now rarely uses as work dries up.

MORTGAGE BROKERS AT PAWNBROKERS

There are as many as 15,000 pawnbrokers across the United States. As the U.S. recession deepens, pawnbrokers — long seen as a lender of last resort — are noting a rise in business.

No national body keeps statistics for the sector, but proprietors across the spectrum say they are thriving as home foreclosures spiral and bank credit remains scarce.

“Business is good,” Mo Money owner Eric Baker said. The store, which makes loans on anything from a motor home to guns to lawnmowers and jewelry, says turnover is up by around 20 percent over a year ago on a broader range of clients.

“You are seeing some bigger stuff, you’re seeing some people you probably wouldn’t have seen,” he said.

The move comes after the mortgage-finance giant came under pressure from a Connecticut legal aid group to end efforts to evict tenants who are able to pay their monthly bills but whose landlords have lost their buildings to foreclosure.

The dollar was starting to respond negatively to concerns about further weakness in the U.S. economy, after an ongoing run of weak data had boosted the currency due to an exodus from risky positions.

“The tide seems to have turned around in recent sessions, with bad U.S. economic news now hurting the dollar rather than helping it,” said UBS analysts in a research note.

By 1223 GMT, the euro was up 1.0 percent at an eight-week high of $1.3508, according to electronic platform EBS.

The dollar also hit a two-month low against a basket of currencies at 82.897 .DXY.

Analysts said the dollar was also suffering as investor demand to dump risky positions and repatriate those funds back into the U.S. currency have started to dry up. Deleveraging trades have also started to calm as currency markets show some sign of stabilising, they added.

The yen fell slightly against the dollar to 90.65 yen, after hitting 13-year highs of 88.10 yen on Friday. Yen gains were capped on speculation that Japanese authorities could intervene to curb further rapid appreciation.

Sterling was supported against the broadly weak dollar, although ongoing concerns about the rapid deterioration of the UK economy helped to push the pound to a record low of 90.22 pence against the euro, according to Reuters data.

Investors also awaited the outcome of a policy meeting by the Federal Reserve on Tuesday to see how close to zero the U.S. central bank will cut interest rates and indicate whether it will aggressively deploy quantitative easing measures to shelter the economy from a downturn.

Protesters in Spain, Denmark and Italy smashed shop windows, pelted police with bottles and attacked banks this week, while in France cars were set ablaze on Thursday outside the Greek consulate in Bordeaux, where protesters warned about a looming “insurrection”.

At least some of the protests were organised over the internet. One website Greek protesters use to update each other on the locations of clashes asserted there have been sympathy protests in nearly 20 countries.