Washington ? Pushing past years of “red flags,” investigators at the Securities and Exchange Commission bungled their probes of Bernard Madoff so badly that his multibillion-dollar fraud not only flourished but he used the exams to suck in new investors, an agency watchdog declared Wednesday.

The report by the SEC inspector general shows that no smoking gun of corruption was found in the agency’s conduct toward the disgraced financier. Instead it painted a grim picture of an agency hobbled by incompetence — failing to pursue the most obvious leads — that cleared the way for Madoff to continue what could be the biggest Ponzi scheme in U.S. history for more than a decade.

One of the most striking points in the report is that the investigations actually may have made things worse.

“Madoff proactively informed potential investors that the SEC had examined his operations” and found nothing amiss, it says. The fact that three SEC inspections and two investigations failed to detect the fraud gave credibility to Madoff’s operations and encouraged more people to give him their money.

The report by inspector general David Kotz cites no evidence of improper ties between agency officials and Madoff, nor of senior SEC officials trying to influence the agency’s probes of his business. Speculation had raged in December, when Madoff confessed to the scheme, that the financier’s influence and ties to the SEC as a prominent Wall Street figure had prompted agency officials to pull their punches in investigations of his business.

The SEC enforcement staff “almost immediately caught (him) in lies and misrepresentations but failed to follow up on inconsistencies” and rejected whistleblowers’ offers to provide additional evidence, the report says.

“The fact that for 16 years (the SEC) had on blinders and earmuffs is mind-numbing,” said Jacob Frenkel, a former SEC enforcement attorney and federal prosecutor now in private law practice.

Four high-ranking SEC officials who were lambasted over the Madoff affair at a congressional hearing in February — including the enforcement director and the head of the inspections office — have left the agency.

SEC Chairman Mary Schapiro, appointed by President Barack Obama, took the helm in January. Enforcement efforts have been strengthened, and the agency has started a number of initiatives meant to protect investors in the wake of the financial crisis, officials say.

Madoff, who pleaded guilty in March, has begun serving a 150-year sentence in federal prison in North Carolina for a pyramid scheme that destroyed thousands of people’s life savings, wrecked charities and gave the financial system yet another big jolt.

The legions of investors who lost money included Hollywood celebrities, ordinary people and famous names in business and sports — as well as big hedge funds, international banks and charitable foundations worldwide.

Revelations in December of the SEC’s failure to uncover Madoff’s massive scheme over more than a decade touched off one of the most painful scandals in the agency’s 75-year history.

The inspector general plans to issue separate audits that will include recommendations for changes in the agency’s enforcement and inspection operations.

His report “makes clear that the agency missed numerous opportunities to discover the fraud,” new chairman Schapiro said in a statement. “It is a failure that we continue to regret, and one that has led us to reform in many ways how we regulate markets and protect investors.”