Wall Street depends on a foundation of trust, but that trust has been squandered in a year investors would rather forget.

The latest outrage could be the largest case of securities fraud in U.S. history. It is the tale of former Nasdaq chairman Bernard Madoff, who is accused of defrauding wealthy clients and others out of up to $50 billion.

Neither hedge-fund managers nor regulators at the Securities and Exchange Commission seemed suspicious of Madoff's consistently high returns. If his alleged confession is true, he was really engaged in a high-flying Ponzi scheme, using money from more recent investors to pay off clients who got in earlier.

The scheme came crashing down when some investors, nervous about the recession, tried to cash out their portfolios. In an instant, people who thought they were worth millions discovered they had been wiped out.

The alleged fraud has touched people from Sen. Frank Lautenberg (D., N.J.), whose family foundation was an investor; to former Eagles owner Norman Braman; to media mogul Mort Zuckerman. Some of the world's largest banks lost hundreds of millions of dollars.

But the losses have hit people of modest means, too. At least 50 charities were bilked; several will shutter their doors because of evaporated investments. The town of Fairfield, Conn., reportedly lost $42 million of its pension plan - 15 percent of its assets.

This scandal is a devastating blow to the hedge-fund market, which is loosely regulated and whose managers obviously didn't perform due diligence on Madoff for their investors. If the industry is to reclaim credibility, it must insist on auditors and regulators who can be believed.

It's an even worse day for the SEC, which allowed Madoff to perpetrate this fraud for years right out in the open. Only eight months after the Bear Stearns debacle, a new mess has been deposited on the SEC's doorstep.

Some financial analysts had warned the SEC in 1999 that Madoff was running a Ponzi scheme. But the agency didn't look into his operations until last week.

Madoff probably avoided detection for so long because he operated another, legitimate business and had long-standing credibility on Wall Street. He also ingratiated himself through generous campaign contributions to officials such as Sen. Charles Schumer (D., N.Y.). But that doesn't absolve the SEC of failing to conduct an examination that could have turned up malfeasance.

For several years, the SEC's enforcement arm has been weakened to the point that its ability to ferret out fraud is now an open question.

Wall Street needs two pillars to restore investor confidence - more money managers with integrity, and beefed-up regulation by the SEC. Until those changes take place, the Street will continue to devalue itself.