SEC officials followed up on emails from a New York hedge fund that described Bernard Madoff's business practices as "highly unusual," the paper said.
The Financial Industry Regulatory Authority, the industry-run watchdog for brokerage firms, reported in 2007 that parts of the firm appeared to have no customers, according to the paper.
Madoff was interviewed at least twice by the SEC, the paper said, adding that regulators never came close to uncovering the alleged $50 billion Ponzi scheme that investigators now believe began in the 1970s.
The SEC could not be immediately reached for comment by Reuters.
The serial regulatory failures will be on display on Monday when Congress holds a hearing to probe why the alleged fraud went undetected, according to the Journal.
Among the key witnesses is SEC Inspector General David Kotz, who was asked last month by the agency's chairman, Christopher Cox, to investigate the mess, the paper said.