Barack Obama launched a withering attack on American financial regulators yesterday for being “asleep at the switch” as he laid the blame for the credit crisis and the world’s biggest scam at their door.

The US President-elect said that the Bernard Madoff scandal, which is believed to have triggered losses of about $50 billion (£33 billion), has “reminded us yet again of how badly [regulatory] reform is needed”.

As Mr Obama fleshed out his financial team, he indicated that both Wall Street regulators and congressional committees had failed the American people, who were frustrated that “there’s not a lot of adult supervision out there”.

Mr Obama’s comments constitute the latest attack on the US Securities and Exchange Commission (SEC), which allowed what appears to be the biggest fraud in history to take place under its nose. Last week, Mr Madoff, a New York financier, apparently confessed to his sons that he had created a vast Ponzi scheme.

The subsequent liquidation of his businesses has left banks, pension funds, charities and private investors nursing billions of dollars of losses and has triggered a witch-hunt at the SEC.

As Mr Madoff spent his first day in Manhattan under virtual house arrest and wearing a security tag on his ankle after being charged with securities fraud, a string of new allegations emerged against both the financier and the SEC.

In documents written by Harry Markopolos, a derivatives expert who formerly worked for a fund that rivalled that of Mr Madoff and who has spent ten years urging the SEC to investigate Mr Madoff, the bust investor is accused of using the names of UBS and Merrill Lynch, the investment banks, to lend credibility to his schemes.

According to the documents, which were written in November 2005, Mr Madoff is alleged to have told potential investors that all of his options trading business was channelled through UBS and Merrill.

However, Mr Markopolos asserted: “The counterparty credit exposures for UBS and Merrill would be too large for these firms’ credit departments to approve. The SEC should ask BM [Bernard Madoff] for trade tickets showing he has traded OTC [over the counter] options thru [sic] these two firms.”

It is understood that neither UBS nor Merrill Lynch has any material exposure to Mr Madoff’s businesses and also that neither had had a sufficiently substantial relationship with Mr Madoff to have conducted these types of trades. Such a discrepancy raises serious questions about the truthfulness of Mr Madoff’s sales pitch to new investors, such as hedge funds, and also whether Mr Madoff sought to exploit the longstanding reputations of UBS and Merrill Lynch to legitimise his own operations.

Ira Lee Sorkin, a lawyer representing Mr Madoff, did not return calls yesterday.

It also emerged yesterday that the SEC was within a whisker of uncovering Mr Madoff's alleged Ponzi scheme when it discovered in 2006 that the financier had misled the regulator about how he managed customer money. The SEC had recommended that Mr Madoff instead register with the agency as an investment adviser.

This week Christopher Cox, the SEC chairman, acknowledged that the regulator had failed to follow up numerous and specific tip-offs about the way that Mr Madoff was running his businesses.

The SEC and the FBI have begun inquiries into Mr Madoff's funds as they scramble to construct a legal case to secure a criminal conviction against the financier. In addition to scouring Mr Madoff’s financial documents and trying to identify the whereabouts of assets, both agencies are seeking to ascertain which other individuals may have assisted Mr Madoff in his alleged fraud.

Attorneys were yesterday honing the terms of lawsuits that they plan to file against the so-called feeder funds that placed their investors’ cash with Mr Madoff.

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