NEW YORK (Reuters) - The trustee seeking money for victims of Bernard Madoff is trying to block a $410 million settlement resolving New York's claims against a Wall Street hedge fund manager accused of secretly steering client money to the swindler.
Irving Picard, the trustee, on Wednesday asked the U.S. Bankruptcy Court in Manhattan to block the settlement with the financier Ezra Merkin, saying it interferes with his exclusive right to seek money for victims of Madoff's Ponzi scheme.
New York Attorney General Eric Schneiderman announced the Merkin accord on June 24, after it had won approval from a New York state judge. It is one of the largest settlements with any individual over activities linked to Madoff and his firm, Bernard L. Madoff Investment Securities LLC.
Citizens of New York do not deserve "a jump start over all of the victims of this heinous fraud," Picard said in a court filing. "It is clear that the remaining assets of the Merkin defendants will be insufficient to satisfy the trustee's claims. Such an outcome would be extraordinarily prejudicial to the creditors of the BLMIS estate."
Picard has been seeking more than $500 million from Merkin and his funds.
Schneiderman had accused Merkin of "recklessly" feeding $2.4 billion from investors in his funds to Madoff, while falsely claiming that he had been actively managing the money.
Jennifer Givner, a spokeswoman for Schneiderman, called Merkin's request for an injunction to block the Merkin accord "inappropriate and without legal merit, and we will take all necessary steps to oppose it."
Andrew Levander, a lawyer for Merkin, said "we are disappointed by Mr. Picard's efforts to interfere" with the earlier settlement, and that his client will continue to defend against what he called Picard's "meritless allegations."
Picard has largely been successful in stopping Madoff victims and people acting on their behalf from pursuing their own cases, though some litigation is still pending.
Last month, he agreed to mediation for a dispute over a $270 million lawsuit by California Attorney General Kamala Harris against the widow of Beverly Hills money manager Stanley Chais over Chais' dealings with Madoff.
The lawsuit against Schneiderman also names as defendants Merkin, his firm Gabriel Capital Corp, and receivers for his four private funds that invested with Madoff: Ariel Fund Ltd, Ascot Fund Ltd, Ascot Partners LP and Gabriel Capital LP.
Bart Schwartz, the receiver for the Ariel and Gabriel funds, said he will oppose any attempt to derail their "fair, legal and binding" settlement with Schneiderman. The receiver for the Ascot funds was not immediately available for comment.
Picard also demanded that Schneiderman provide a copy of the Merkin settlement, saying the attorney general's lawyers have refused because it was "premature" to do so.
Schneiderman's settlement with Merkin had been delayed for more than four months while parties tried to address Picard's claims in a comprehensive resolution, a person familiar with the matter said.
The person declined to be named because the negotiations were not public. A spokeswoman for Picard declined to comment.
More than $1.1 billion has been distributed to Madoff victims. Last week, Picard asked U.S. Bankruptcy Judge Burton Lifland, who oversees the Madoff firm's liquidation, for permission to distribute as much as $2.4 billion more.
Picard has recovered about $9.14 billion for victims so far, though much has been tied up in litigation. The trustee has estimated that Madoff victims lost about $20 billion.
Separately, the trustee's law firm of Baker & Hostetler on Wednesday asked Lifland for approval to bill $48.1 million of legal fees to pursue the Madoff cases for the four months ended January 31, boosting total fees charged to about $321.2 million.
The sum for the four months represents 134,431 hours of work at an average of $357.86 per hour, after a 10 percent discount, according to a court filing.
Madoff, 74, pleaded guilty in March 2009 and is serving a 150-year sentence in a North Carolina federal prison.
The cases are Picard v. Schneiderman et al, U.S. Bankruptcy Court, Southern District of New York, No. 12-ap-01778; and Securities Investor Protection Corp v. Bernard L. Madoff Investment Securities LLC in the same court, No. 08-ap-01789.
Reporting by Jonathan Stempel and Karen Freifeld in New York; Editing by Gary Hill, Richard Chang and Kenneth Barry