Trustee Overseeing Liquidation of Madoff's Assets Sues Connecticut Fund

The trustee overseeing the liquidation of Bernard Madoff's assets has sued another of his major investors, this time demanding the Fairfield Greenwich Group give back $3.5 billion it earned from the disgraced financier.

Like other investors sued by the trustee in recent weeks, Fairfield Greenwich has claimed to be an innocent victim of Madoff's massive Ponzi scheme.

But in a complaint filed Monday in bankruptcy court in Manhattan, the trustee alleged the Connecticut firm "knew or should have known" that Madoff's operation "was predicated on fraud," and that the returns had to be fiction.

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Three Fairfield Greenwich hedge funds named in the lawsuit "failed to exercise due diligence ... in connection with the Ponzi scheme," the complaint said.

A statement Monday from Fairfield Greenwich said the trustee's allegations were groundless.

The funds managed by the firm "lost far more from the Madoff fraud than they ever redeemed," the statement said. "There is no merit to this lawsuit and it will be defended vigorously."

Last month, Massachusetts Secretary of State William Galvin filed a similar lawsuit against Fairfield Greenwich, saying the so-called feeder fund had failed to disclose internal concerns about Madoff's operation. The firm, which had billions invested with Madoff, denied those allegations as well.

Madoff, 70, pleaded guilty in March to charges that his secretive investment advisory operation was a multibillion-dollar scam. The former Nasdaq chairman faces up to 150 years in prison.

The court-appointed trustee, Irving Picard, has filed similar complaints against other big money managers and investors in recent weeks in an aggressive, far-reaching bid to retrieve funds to pay off thousands of claims from cheated Madoff clients.

Defendants include J. Ezra Merkin in New York and Stanley Chais in Los Angeles. Both were longtime Madoff associates who have denied deny any wrongdoing.

Another complaint filed last week demanded one of the nation's leading educational philanthropies, the Picower Foundation, return at least $5.1 billion the trustee alleges came out of the pockets of victims. A lawyer for founders Jeffry Picower and his wife Barbara — friends of Madoff for decades — said they were shocked by the fraud that wiped out their foundation and in no way involved.

The Palm Beach, Fla.-based foundation had given millions to the Massachusetts Institute of Technology, Human Rights First and the New York Public Library.