The world's biggest fraud, estimated to be worth about $50bn, could have been avoided if the US had introduced regulations to force firms to use technology to increase the transparency of financial transactions.
Bernard Madoff, founder of Bernard Madoff Investment Securities, was charged with securities fraud last week after he allegedly told senior employees that his investment operations were fraudulent.
Madoff reportedly described his company as a Ponzi scheme - a pyramid investment scheme that creates a fake market where early investors make money at the expense of new entrants.
Financial services companies hit by the fraud, are at risk of losing millions of pounds, They include Royal Bank of Scotland, HSBC and Santander.
According to the Financial Times, Jim Vos, who heads advisory firm Aksia, said Madoff mailed paper copies of his trading records to clients rather than providing them with electronic access to his trading platform.
"Paper copies provide a hedge fund manager with the end-of-the-day ability to manufacture trade tickets that confirm the investment results," Vos told clients in a letter seen by the Financial Times.
This would enable a fund manager to falsify the results of various trades and keep the scheme going without investors realising.
This highlights the complexities of the investment sector which technology could simplify.
Technology can increase transparency and prevent investment fraud, according to Brian Taylor, financial services consultant at BTA Consulting. He said the underlying customer that is affected by an investment should be notified immediately. Electronic communication is the best way of doing this.
But he said the difficulty is identifying who the clients affected are. "In this day and age of fraud and bankruptcies the regulators should seriously consider having a common client identification system which could notify an investor, by e-mail or SMS, of any activity on their account."