Scandal may lead to policy review

Such a large Ponzi scheme - in which early investors are paid with money raised from subsequent investors - should prompt lawmakers to review how the US polices brokerages, wealth managers and unregistered advisors, such as hedge funds, said James Cox, a securities law professor at Duke University in Durham, North Carolina.

"There are just so many people out there who are and aren't registered that it really just overwhelms the system," Cox said. "There is no easy way to expand the regulatory net unless we're willing to put the might of the federal budget behind it to carry out more inspections."

Barry Barbash, a former head of the Securities and Exchange Commission's investment management division, said the agency has tried to focus its inspections on money managers who pose the biggest risks. The regulator uses criteria such as which securities a firm is buying and who its clients are, said Barbash, a partner at Willkie Farr & Gallagher LLP in Washington.