New York Law School was the first to take legal action against its accountants, when it brought a suit yesterday against BDO Seidman and the firm it audited, Ascot Partners, where it had its $3m endowment fund invested.

Ascot, managed by GMAC chairman Ezra Melkin, invested all its money with Madoff and reportedly lost $1.8bn. Lawyers predict lawsuits against other accounting firms will soon follow, Time magazine reports.

BDO Seidman, KPMG, PricewaterhouseCoopers and McGladrey & Pullen signed off on numerous statements, attesting the Madoff investment vehicles had billions of dollars of assets as well as a track record showing years of positive returns, billions of assets which have now vanished and returns which seem to have been made up.

'It's surprising that the auditors for these various funds didn't identify that the underlying assets were not there,' says Christopher Wells, a partner at law firm Proskauer Rose, which specialises in hedge funds. 'You would think that is something they test.'

Further reading:

SEC starts immediate internal probe into Madoff fraud

Madoff's $50bn fraud sends shockwaves worldwide

Read the Time magazine story