No deluge of lawsuits - yet - in Madoff case

By Martha Graybow and Svea Herbst-Bayliss

NEW YORK/BOSTON (Reuters) - There has been no rush to the courthouse yet by Bernard Madoff's angry investors, but a wave of legal action could be on the way as their lawyers spearhead private investigations into the suspected fraud.

A little more than a week after authorities say the veteran money manager confessed to a $50 billion swindle, only a handful of lawsuits had been filed in U.S. courthouses by investors seeking to recoup losses.

Lawyers are working overtime, though, to investigate the case and say they are sure that the scandal will ultimately spur plenty of court action -- perhaps for years to come. When the big cases are filed, they are likely to seek huge damages, and many of the lawsuits will likely be consolidated.

For now though, lawyers say many stunned Madoff clients are not yet mentally ready to explore court remedies as they grapple with the reality that their life savings may be gone.

"People all over the country are still in shock at hearing that their millions have evaporated," said Jan Soifer, special counsel at law firm Baron & Budd PC.

Even while people are clamoring to sue, lawyers who specialize in investor claims say they are still sorting through the situation and formulating legal strategy. They say they only want to bring cases they think they can win.

"We've been conducting an investigation into what, if any, legal remedies are available to those who have been in effect robbed by Mr. Madoff," said Robert Schachter of law firm Zwerling Schachter & Zwerling LLP.

"Our goal is to come up with something that we think will hold water in court," he said.

While federal prosecutors, the FBI, the U.S. Securities and Exchange Commission and others are examining Madoff's business and looking for any potential investor recoveries, plaintiffs' lawyers are launching their own probes. These law firms often have their own staffs of forensic accountants, fraud examiners and private investigators.

Should Madoff himself prove insolvent, as he has told federal investigators, that would mean aggrieved investors would have to explore cases against other defendants.

One group expected to face an onslaught of lawsuits is the hedge fund firms that handed over investor money to Madoff to manage, often without the clients' knowledge, lawyers say.

A few court cases have already been filed. In one, asset manager Ascot Partners LP was sued by the New York Law School over the school's investments in Madoff's firm.

The lawsuit, filed on Tuesday in U.S. District Court in New York, contends that Ascot, as well as its general partner J. Ezra Merkin and auditor BDO Seidman LLP, were negligent by handing over "virtually the entire investment capital" of Ascot to Madoff to manage.

In past financial scandals, shareholders often have been quick to file legal action, in part because there were more readily identifiable defendants, legal experts say.

After the disclosure of a massive accounting fraud at WorldCom in June 2002, for instance, it took only days for plaintiffs to sue the telephone company, former executives and auditor Arthur Andersen LLP.