Some people thought Maddoff was making his high returns by trading with inside information, e.g. taking advantage of future trades made by his brokerage firm. Of course, doing that is illegal and they had to know that, but it would give them incredible returns.
Personally, I believe he was shipping money to off shore accounts and some insiders, who are crying that they've been scammed, have their untaxed money safely offshore.
I think this scam came to light when that 'bailout' became law of the land.... New money to replace supposed old lost money.