Merkin to sell artwork amid N.Y. Madoff probe

NEW YORK (Reuters) - Hedge fund manager Ezra Merkin has agreed to sell his art collection for $310 million, with the net proceeds to go toward possible payment to his investors who lost money in the Bernard Madoff fraud.

The sale was announced in court papers on Tuesday by New York Attorney General Andrew Cuomo, who accused Merkin in an April lawsuit of improperly steering $2.4 billion in customers' money to Madoff without their knowledge.

Merkin was not accused of knowing about the swindler's massive Ponzi scheme, but Cuomo contends Merkin misled clients about who was overseeing their investments.

Merkin's art collection includes paintings by Mark Rothko and sculpture by Alberto Giacometti. The sale to an unidentified buyer will yield at least $191.9 million, after liens, taxes and fees, Cuomo's office said.

Madoff, 71, was sentenced to 150 years in prison on Monday for running a fraud involving as much as $65 billion in investor cash over two decades.

"We believe it is only fair that Mr. Merkin liquidate his valuable art collection, which he purchased with the fees he earned from his investors, and keep the proceeds in escrow pending resolution of our lawsuit," Cuomo said.

Merkin's attorney, Andrew Levander, said the hedge fund operator and his wife had agreed to the sale and to place the proceeds in escrow while the litigation continues, "without prejudice to their rights."

He said Merkin continues to defend himself against the court action brought by Cuomo and others, believing that the lawsuits have no merit.

Cuomo contends that Merkin, a New York money manager and former chairman of the GMAC LLC finance company, ignored glaring red flags about Madoff's business while reaping $470 million in fees by doing business with the swindler.

The lawsuit, brought in New York state court, accuses Merkin of civil fraud.

Merkin ran three hedge funds known as Ascot, Gabriel and Ariel. He has said he performed extensive due diligence on Madoff but was misled just like thousands of others.

Merkin also faces lawsuits brought by his investors, including one filed by real estate investor Mort Zuckerman over about $40 million in losses in the Madoff fraud sustained by a charitable trust Zuckerman runs.

(Reporting by Martha Graybow; Editing by Tim Dobbyn)