BOSTON/NEW YORK, Sept. 3 (Reuters) – US securities regulators missed ''numerous'' red flags that may have led to Bernard Madoff's $65 billion Ponzi scheme and never did a ''thorough and competent'' probe despite complaints dating to 1992, a federal watchdog has concluded.

The US Securities and Exchange Commission's inspector general said in a blistering report that despite five probes and having caught Madoff in ''lies and misrepresentations,'' the SEC failed to follow up on inconsistencies.

''Despite numerous credible and detailed complaints, the SEC never properly examined or investigated Madoff's trading and never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme,'' Inspector General David Kotz wrote.

Kotz said the SEC's ''most egregious'' lapse was its failure to verify Madoff's purported trading with any independent third parties, even after it took testimony from Madoff in May 2006.

Madoff later admitted that he thought it was ''game over'' after testifying to having cleared his trades through the Depository Trust Co, part of the US Federal Reserve, and provided his account number. He said he was ''astonished'' that the SEC did not follow up.

Kotz quoted one senior-level SEC examiner as saying, ''Clearly, if someone ... has a Ponzi and they're stealing money, they're not going to hesitate to lie to create records,'' and thus ''some independent third-party verification'' such as through the DTC would be essential.

He said the SEC had made a ''surprising discovery'' earlier this decade that Madoff's hedge fund business was making far more money than his better known market-making business, but no one thought this was a ''cause for concern.''

Madoff pleaded guilty in March to orchestrating the Ponzi scheme, which used money from new investors to pay old ones, He is serving a 150-year prison term.

Prosecutors have said that Madoff appeared to be rewarding his customers with steady returns, but he was faking their account statements and did not place trades on their behalf.

Kotz said SEC staffers were at times too inexperienced or narrowly focused, and resisted whistle-blowers' efforts to expose Madoff.

He said his investigation had not found evidence of improper ties between the SEC and Madoff that interfered with the SEC's examination or investigatory work.

And he said he had not found that former SEC Assistant Director Eric Swanson's romantic relationship with Madoff's niece, Shana Madoff, had influenced the SEC's conduct.

The SEC's lapses in dealing with Madoff have prompted the agency to implement reforms, including increased use of subpoenas.

Mary Schapiro, who became SEC chairman after Madoff's fraud was uncovered in December 2008, said in a statement on Wednesday that while the reforms should help, ''the public deserves a full accounting of why the agency did not detect the Madoff scheme.''

There had been five SEC chairmen between 1992, when the complaints to the SEC about Madoff started, and Madoff's arrest: Richard Breeden, Arthur Levitt, Harvey Pitt, William Donaldson and Christopher Cox.

''There were clearly lapses on the part of the SEC staff, which accounted for the failure to uncover Madoff's Ponzi scheme,'' Pitt said in an emailed statement.