The complaint, filed in New York on December 19th, accuses Fairfield Greenwich Group (FGG) and its founding partners - Walter Noel, Andres Piedrahita and Jeffrey Tuucker - of breaching fiduciary duty, negligence and unjust enrichment, Bloomberg reported.
Brian Fancouer and Amit Vijayvergiya of affiliate firm FG Bermuda are also named in the lawsuit, the news agency added.
The lawsuit alleges that the defendants failed to carry out "even a minimum level of due diligence" regarding Mr Madoff's investment methods and that they ignored "red flag" warnings that something was wrong, such as Mr Madoff's investments paying out steady gains in a declining market.
All the while, the plaintiffs argue, FGG collected "millions of dollars" in charges and fees.
Christopher Lovell, the lawyer representing investors in the action, said: "Investors trust these hedge fund people to do the analysis and use due care to analyse what's going on ... That's not what happened here."
FGG declined to comment.