Madoff trustee collects $1bn from hedge fund

Hedge fund Tremont Group and its parent company Mass Mutual have agreed to pay more than $1bn to settle a lawsuit brought by the trustee responsible for collecting money for Bernard Madoff’s victims.

The settlement, which requires US court approval, will bring the total amount collected by the court-appointed trustee, Irving Picard, to $8.6bn. Mr Picard has sued numerous financial institutions, among others, seeking more than $90bn. Most of the financial firms have denied wrongdoing and are fighting the allegations.

Mr Picard has estimated the size of the decades-long fraud to be $17.3bn, down from the $65bn claimed by the jailed broker.

The pact will resolve a lawsuit filed in December, in which Mr Picard alleged that Tremont, through its Rye Select and Tremont family of funds, amassed more than $240m in fees from its nearly 15-year association with Mr Madoff. The lawsuit filed in bankruptcy court alleged that Tremont officials expressed concerns about the lack of transparency of Madoff’s business and ignored “obvious warnings signs of fraud”.

Tremont was the second-largest “feeder fund” to the Madoff operation, bringing in more than $4bn, according to court filings, and “substantially aided, enabled and helped sustain the massive Ponzi scheme”. Mr Picard sued to recover $2.1bn in funds Tremont allegedly withdrew during the Ponzi scheme.

The settlement also covers Robert Schulman, Tremont’s former chairman.

“Tremont is pleased to have negotiated an agreement with the trustee that gives investors in our funds the potential to recover a substantial portion of their losses incurred as a result of Madoff’s fraud. We concluded that bringing this matter to a close, with proofs of claim preserved, was the best outcome for investors in our funds,” said Montieth Illingworth, a spokesman for Tremont.

The bankruptcy court in the southern district of New York has scheduled a hearing to approve the settlement for September 13.

In May, the trustee reached a settlement with the liquidator of the Fairfield Greenwich funds, the largest feeder fund to Madoff, in which it agreed to pay $1bn. A lawsuit against the principals of Fairfield is continuing.

Mr Picard recently won court approval to begin distributing funds to Madoff victims, who have mostly had to wait to recover money since the fraud was uncovered in December 2008.

Other lawsuits are being litigated. The trustee has sued JPMorgan Chase for $19bn and Sterling Equities and the Wilpon family, owner of the New York Mets baseball team, for at least $1bn. Both companies have denied any knowledge of the fraud.