* One of largest settlements of private Madoff litigation
* Settlement requires court approval, could grow
* Madoff trustee also pursuing claims
* Tremont pleased to settle, denies investors' claims
By Jonathan Stempel
NEW YORK, Feb 25 (Reuters) - Investors who lost money in Bernard Madoff's Ponzi scheme have reached a $100 million settlement with a group of funds affiliated with Tremont Group Holdings Inc that funneled their money to the now imprisoned con man.
The settlement filed Friday evening in Manhattan federal court followed mediation to resolve claims against Tremont, which is part of Massachusetts Mutual Life Insurance Co.
Tremont and its now defunct Rye Investment Management unit lost more than $3 billion of client money it funneled to Madoff and his firm Bernard L. Madoff Investment Securities LLC.
The investors alleged that Tremont failed to conduct adequate due diligence, and "turned a blind eye to the red flags" it had about Madoff's activities.
The class-action settlement requires court approval, and is among the largest reached in private litigation by investors who lost money with Madoff.
These investors may recover additional sums through litigation undertaken by Irving Picard, the court-appointed trustee seeking money from victims of Madoff's fraud.
Friday's accord "is a tremendous result," Andrew Entwistle, a partner at Entwistle & Cappucci LLP representing the investors, said in an interview. "We are hopeful of a final resolution with the Madoff trustee in the near future."
Kevin McCue, a spokesman for Picard, did not immediately return a request for a comment.
A Tremont spokesman, Montieth Illingworth, said the firm was pleased to resolve the investors' claims, "which we have vigorously denied, and on terms that will enable investors to recover some of the losses" from Madoff's fraud.
Entwistle said the settlement could grow by $50 million as other Tremont funds wind down and separate litigation is resolved.
"There aren't too many of these lawsuits against Madoff feeder funds whose parents are still solvent," Reed Kathrein, a partner at Hagens Berman Sobol Shapiro LLP also representing the investors, said in an interview. "We got everything that we could have possibly gotten from Tremont."
Madoff pleaded guilty in March 2009 to running a Ponzi scheme that prosecutors estimated at $65 billion. He is serving a 150-year prison sentence.
The case is In re: Tremont Securities Law, State Law and Insurance Litigation, U.S. District Court, Southern District of New York, No. 08-11117. (Reporting by Jonathan Stempel in New York; Editing by Bernard Orr)