The Madoff Fraud: How Culpable Were the Auditors?

Add the nation's largest accounting firms to the list of watchdogs and regulators that didn't catch the multibillion-dollar Madoff investment scam.

KPMG, PricewaterhouseCoopers, BDO Seidman and McGladrey & Pullen all gave clean bills of health to the numerous funds that invested with Bernard Madoff and his asset-management firm. Clients say the large accounting firms signed off on statements that said the Madoff investment vehicles had billions of dollars in assets as well as an unlikely track record showing years of always-positive returns. The billions have vanished, and the impressive returns now look to have been made up. See the top 10 financial collapses of 2008.

"It's surprising that the auditors for these various funds didn't identify that the underlying assets were not there," says Christopher Wells, a partner at the law firm Proskauer Rose who specializes in hedge funds. "You would think that is something they test."

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