At the end of last year, a 61 year old New York woman Phyllis Molchatsky sued the Securities and Exchange Commission for negligence after she lost $2 million investing with Bernard Madoff. Now in the wake of the an SEC internal investigation report slating the agency for missing obvious tell-tale signs that Madoff wasn't kosher, Time magazine raises the question of whether the report will open the way for lawsuits against the regulator.

Legal experts have told Time that anyone wanting to launch a lawsuit against the SEC would face an uphill because government agencies have what they call "sovereign immunity". Unless the discovery process can uncover a smoking gun, some evidence that there was some directive to ignore the warning signs, their chance of succeeding are remote.

At the same time, however, David Bernfeld, a partner at Bernfeld Dematteo & Bernfeld LLC told Time there was enough evidence in the report showing negligence, which might be enough. Bernfeld said: ""The report was really candid. It's an astonishing litany of indifference and ineptitude" that occurred over a long period of time. And this should be helpful in getting past the sovereign-immunity defense because it makes clear that this was not simply a decision not to investigate - it was a series of investigations undertaken but negligently performed."

Still, to cover itself the SEC is now looking at setting up a fraud college to help its officials detect financial shenanigans, reports Bloomberg. As if the stuff that was going on before, and the warning they were getting from investors and whistleblowers weren't enough, something I covered this week here.

But then, setting up a fraud school might just cover the SEC in the event of a lawsuit.