MassMutual became the latest big investor to admit losing money because of Bernard Madoff.

According to Wall Street Journal, the company's Tremont Financial Group lost $3 billion -- more than half of its assets -- because of Madoff's $50 billion scam. Then there's the problem of disclosure.

"Tremont marketing documents did not always disclose the relationship between Mr. Madoff and the feeder funds, even when mentioning other investment managers," the paper said.

So let me get this straight: MassMutual entrusted some of its investors' money to one of the supposed geniuses of Wall Street and did not want anyone to know? Maybe the company did not want its customers to know that it was collecting fees that it did not really earn. I suspect many aggrieved investors will sue. I sympathize with their plight, ,but I do not feel sorry for people who invested with Madoff directly.

Many Madoff customers turned a blind eye to many red flags that should have sent them running for the hills. First of all, no one understood the Madoff's "investing philosophy." Questions about his strategy went unanswered.

As I posted over the weekend, it takes a village to pull off a $50 billion investment fraud. In the case of the Madoff securities fraud, that village may have included his investors, family, accountants, regulators, politicians and hedge fund bundlers. And it could be that part of that village included two New York senators and the SEC. How so? Campaign contributions from Madoff to two New York senators and a family relationship between Madoff and an SEC investigator may have deflected any efforts to shut down the fraud.

Were Madoff's Washington money connections enough to keep investigators away? It's possible. Senate Banking Committee member Charles Schumer, D-NY, was the top congressional recipient of Madoff's $267,000 in campaign donations between 2001 and the present. Schumer's campaign -- which received $32,000 during that period -- claims it has turned over the money to charity. Others in Congress have received smaller amounts from Madoff including Barney Frank, D-MA ($2,250) and Hillary Rodham Clinton, D-NY ($2,800).

At their base level, Ponzi schemes are incredibly simple: the schemer promises a consistent, impressive return on an investment, which he funds by soliciting new investors and using their money to pay off earlier investors. If the schemer can successfully project an air of reliability, he can often convince his investors to keep their principal in the fund, which means that he only has to pay dividends, improving his profit margin and extending the longevity of his scam.

Any intelligent person recognizes that a Ponzi scheme is, essentially, suicidal. Even in a consistently strong market, there will come a day when people will withdraw from the fund, investigators will shut it down, or the financial house of cards will fall apart. The best that a Ponzi schemer can hope for is that he will die before he is caught or will somehow be able to pull out all funds and make a run for it. In the case of Bernard Madoff, it's pretty clear that he was counting on the former. While this didn't work out, one could make a strong argument that Madoff's life currently isn't worth a plugged nickel: even if he somehow survives the next few months without suffering a massive coronary, chances are that a former investor or fellow inmate (or both!) will soon introduce him to the business end of a shank.

It won't take long for a flurry of lawsuits to be filed over the massive losses caused by the Madoff Ponzi scheme. Filing complaints is easy. Recovery is far more difficult.

There is no doubt that investors who entrusted Madoff with their life savings should be entitled to get them back. I only wish it were that open and shut.

There is a lot we don't yet know, but here's the way it looks to me at present.

Investors who relied on hedge funds ("funds of funds") may have a shot a recovery. These funds represented that they had the ability to select and monitor fund managers. Their recommendation of Madoff to their clients will be difficult to defend given the numerous red flags that have surfaced about his secretive and conflicted operation.

Investors who relied on other referral sources (brokerage firms, accountants, lawyers, advisors) stand on similar footing. These sources of referral may well have liability for not doing more due diligence before recommending Madoff's firm.

Prosecutors are now saying that disgraced former Democratic fund-raiser Norman Hsu pressured high-profile figures to make donations through him in order to boost his public persona -- Then he used the facade of credibility this constructed to to fund a Ponzi scheme that bilked investors out of millions.

Hsu also allegedly gave people money to make donations, which is a crime. According to The Wall Street Journal (subscription required). "In one case, the complaint says, an investor donated $32,000 in 2006 to multiple campaigns, and Mr. Hsu agreed to reimburse the person. Another investor donated $28,600 in 2006 to multiple candidates, and Mr. Hsu wrote reimbursement checks, the complaint says."

Sam E. Antar, the CFO behind the infamous Crazy Eddie Fraud and now the author of the blog White Collar Fraud, explained how fraudsters construct images to coax investors into trusting them:

Fraudsters like myself, we build a whole world of respectability around ourselves. I gave money to a lot of charities while I was committing my fraud. My cousin Eddie, he gave a lot of money with his stolen money to a lot of charities. He gave a lot of money to politicians. He built wings on to hospitals and built a big aura of respectability around him and people were in awe of him. This is what fraudsters do.

In a recent post, Gary Weiss makes the case that Overstock.com CEO Patrick Byrne is doing something similar with his support for a school voucher program.

Here's some pretty strong evidence that Americans could use some more financial literacy and fraud prevention training. The SEC filed securities fraud charges today against what the Commission called a "Internet-based Ponzi scheme that raised $41.9 million in just four months from over 20,000 investors worldwide".

That's a lotta lettuce. PhoenixSurf.com offered "investors" an elaborate scheme wherein they could earn returns of 120% in 8 days. Warren Buffett eat your heart out!

The defendants, Jonathan W. Mikula, 21 and Gabriel J. Frankewich, 29, both of Georgia, settled the charges without admitting or denying guilt by disgorging their ill-gotten gains.

The fact that what appears to be such an obvious Ponzi scheme, just based on the returns offered, was able to attract so much money is indicative of how ignorant a lot of people are when it comes to protecting themselves from scams.

Walter Ricciardi summed it up well in an interview with the Associated Press: 'If it looks too good to be true, it probably is... Promises or guarantees of double-digit returns in a matter of days or weeks are highly suspicious and the investor should exercise extreme caution."

It looks like the same greed that inspired Mikula and Frankewich allowed a lot of people to be conned out of their hard-earned money.