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It's important for investors to recognize warning signs because the scheme run by Bernard Madoff is not the only Ponzi scam out there, said Jacob S. Frenkel, a partner at the Rockville law firm of Shulman, Rogers, Gandal, Pordy and Ecker.

A former attorney for the U.S. Securities and Exchange Commission, Frenkel said he does not represent anyone in the Madoff case. But he has kept busy in recent weeks speaking about the situation with major media, including CNBC, CBS, PBS, Bloomberg and The Wall Street Journal. This week, he spoke at a conference of the Investment Industry Association of Canada in Toronto under the topic: "Madoff: Could This Be Happening Under My Nose?"

Ponzi schemes typically occur in close-knit groups, such as those having a common religious or ethnic affiliation, Frenkel said. Sometimes they target the elderly, he said.

"Fundamental to affinity fraud is a trust and familiarity that derives from the very nature of that group, the tight-knit nature of that group," Frenkel said. "It's common for fraudsters to invite in as investors respected members of the community, which might include religious leaders."

Madoff had two key audiences where he enjoyed a high level of trust, the Jewish community and the investment community, he said. "He was in a more powerful position of trust because of the perceived success and stature in the investment world that he achieved," Frenkel said.

Madoff's past positions included vice chairman of the National Association of Securities Dealers, as well as chairman and an executive committee member of the Nasdaq stock market.

So why would a man of Madoff's position and wealth seek to bilk so many people? Frenkel theorized that Madoff spent a number of years making some good returns before there came a time when "8 [percent] to 10 percent returns or a negative return" was not good enough.

"He probably thought no one would know the difference and began generating false statements with the hope that if he traded more aggressively, he could return the portfolio to full value and be back on track," Frenkel said. "Now, that is entirely speculation in my part. And that could have been 25 years ago when he made that turn."

The scam could have continued, as some people were embarrassed to admit they were defrauded, he said. "Madoff was successful as long as he had the ability to conceal the fraud and bring in fresh money to pay people who were making demands along the way," Frenkel said.

There is a misconception in such cases that there is no real recourse through insurance claims, Scott Gilbert, a partner with the Washington, D.C., law firm of Gilbert Oshinsky, said in a statement. "There are hundreds of millions of dollars out there to be recovered through insurance claims," he said.

It's important to make insurance claims quickly to "minimize conflicting claims and insurer defenses," Gilbert said.

Don't depend on ‘a guy'

The scandal has made financial planners take greater precautions to protect investment clients. But it's also important for investors themselves to make sure they stay aware and educated, said Bonnie A. Hughes, an executive with The Enrichment Group, a financial planning company in Miami.

"Do your own due diligence," said Hughes, a board member with the Financial Planning Association of Denver. That means doing extensive background checks of potential investment advisers, such as through the SEC or a state securities division, she said.

Don't accept a potential investment adviser's answer that information is "proprietary" when asked about strategy or tactics, Hughes said.

"You should always be able to repeat how it's invested, where it's invested, why it is invested that way, who it's invested with, when you'll get it back," she said. "‘I got a guy' is not an investment strategy."