US Attorney General Michael Mukasey has removed himself from the $50bn (£33bn) Madoff fraud investigation, the justice department said.
Department spokesman Peter Carr said that Mr Mukasey has "recused himself", using the legal term, but he declined to discuss the reason.
Wall St figure Bernard Madoff has been charged with fraud in one of the biggest-ever such cases.
Investors, banks and charities fear they may have lost billions of dollars.
Mr Mukasey's son, Marc, told Reuters on Wednesday that he represents a senior official at Mr Madoff's firm, Frank DiPascali.
"I represent Mr DiPascali, for the record, we are trying to sift through the facts like everybody else," he said.
Court appearance
Meanwhile, Mr Madoff's first court appearance since being arrested was cancelled on Wednesday after he agreed to stricter new bail conditions.
New restrictions under the $10m (£6.4m) bail include home detention, electronic tagging and a requirement that his wife must surrender her passport, as well as pledge properties she owns in New York and Florida, Magistrate Judge Gabriel Gorenstein said in court documents.
Mr Madoff, 70, has already surrendered his own passport.
His wife, Ruth Madoff, has not been accused of any wrongdoing.
Earlier, the top US financial regulatory body ordered an in-house inquiry into why it did not detect the fraud case sooner.
Christopher Cox, head of the Securities and Exchange Commission (SEC), launched an inquiry into what he called a serious agency breakdown.
It has been revealed the SEC received warnings about Wall St figure Bernard Madoff almost 10 years ago, in 1999.
It is thought that Mr Madoff was running what was essentially the world's largest pyramid scheme, the BBC's Andy Gallacher reports from Washington.
Serious questions are now being asked about the SEC's role in not preventing it in the first place, our correspondent says.
WHAT IS A PONZI SCHEME?
Banks and financial institutions across the world had investments with Mr Madoff, but not all have yet confirmed what their potential losses might be.
Among the potential losers is Spain's largest bank, Santander, which owns the UK High Street banks Abbey, Alliance & Leicester and Bradford & Bingley.
Private Austrian bank Medici said it had exposure of $2.1bn (1.5 billion euros) through two of its investment funds, but insisted the bank would pull through.
Japanese financial giant Nomura said it could lose up to $303m.
Some of the biggest private losers seem to have been members of the Palm Beach country club, where many of Mr Madoff's wealthy clients were recruited.
Charities appear also to have suffered such as the New York-based JEHT foundation, which said it was freezing all its grants and would shut by the end of January, and film director Stephen Spielberg's Wunderkinder Foundation charity.
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