Madoff Letter: Insider Trading Has Gone on ‘Forever’

"Institutions have always attempted to guard this buy and sell information from exposure to the market for fear of being front run," Madoff writes. "Certainly they are entitled to have this right of confidentiality. That being said, the more secret this information, the more valuable this information is to those that can obtain it. Therein lies the problem. It is naive to think that there will be no leakage of this information."

As CNBC notes, Madoff built his fraud on one of the largest hedge funds on Wall Street, which attracted investments from individuals as well as a series of so-called "feeder funds." But Madoff now says the rapid growth of hedge funds and feeder funds-and their commissions and fees-have created a problem for investors and regulators.

"It has been this additional layer of costs that have created the need for more risk to be taken to earn worthwhile returns. This has created a minefield of regulatory problems involving the very reasons that the desire for a lack of transparency has grown. Both of these areas are going to be the greatest challenge that both the industry and the regulators are going to face."