Ten months after the filing of an administrative claim against the SEC that the agency refused to settle, two investors are now suing the SEC in federal court for its alleged negligence in failing to detect the Bernard Madoff scheme.

The plaintiffs are Phyllis Molchatsky and Steven Schneider. The WSJ reports that Molchatsky lost $1.7 million from her retirement savings while Dr. Schneider lost $750,000. Their lawsuit asserts that while Madoff is "obviously the chief culprit," the SEC must also "be held accountable and responsible for its own negligent actions and inactions that directly and proximately caused the loss of billions of investor funds."

As previously discussed here, in December 2008, shortly after the initial administrative action was filed, law professor Erwin Chemerinsky told me that he “does not see a viable suit for money damages against the United States” related to the SEC’s admitted failure to properly handle its probe of Bernard Madoff’s operation. Prof. Chemerinsky stated that the United States government (including the SEC) has sovereign immunity and can be sued only if there is a federal law authorizing suit. “The bottom line,” he said, “is that I do not see a viable suit for money damages against the United States. Perhaps there might be claims against other defendants.”

This would be true, he said, even if the SEC’s conduct was deemed to be gross negligence. “There is no liability for the United States even for gross negligence in the performance of a discretionary task.”