Accounting firm BDO Seidman has been sued in connection with the $50 billion Ponzi scheme run by Bernard Madoff's investment securities business, even though it wasn't Madoff's auditor.

The New York Law School sued BDO Seidman for its audits of Ascot Partners, a fund that invested heavily with Madoff's securities firm. The law school also sued Ascot, as well as J. Ezra Merkin, chairman of GMAC Financial Services, which managed the fund.

BDO denied wrongdoing in the case. "It is understandable that investors affected by the massive fraud at Bernard L. Madoff Investment Securities are frustrated and angry," said a statement forwarded by a BDO spokesman.  "However, it is unfortunate that these investors would bring legal action before all of the facts are known and seek to blame others for their own investment decisions. BDO Seidman is not and has never been the auditor of Madoff Securities. BDO Seidman's audits of Ascot Partners conformed to all professional standards and we will vigorously defend ourselves against these unfounded allegations."

The law school's complaint accuses Merkin of recklessness, gross negligence and breach of fiduciary duty in investing nearly all of Ascot's assets, or $1.8 billion, in Madoff's (pictured) firm, according to Dow Jones Newswires. New York Law School invested $3 million in Ascot in 2006, and contends that the investment is now gone. The lawsuit is seeking class action status.

The AICPA said it is investigating Madoff's own auditor, Friehling & Horowitz, after discovering that the firm's accountant, David Friehling, told the institute for 15 years that his firm does not perform audits (see AICPA Investigates Madoff Auditor).

Other accounting firms may find themselves the target of investor lawsuits in the case. Fairfield Greenwich Group, whose hedge fund invested $7.5 billion in Madoff's firm, is considering suing its own auditors, PricewaterhouseCoopers, for failing to detect the fraud, according to the Financial Times. Another fund that invested heavily in Madoff's firm, Rye Select Broad Market, was audited by KPMG, according to Time magazine.