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UPDATE 3-Madoff trustee files wider $3.6 bln Fairfield suit

* 43 defendants added to Fairfield feeder fund case

* Defendants did not help Madoff commit fraud-spokesman (Adds details from complaint, Fairfield response)

NEW YORK, July 21 (Reuters) - The trustee overseeing liquidation of Bernard Madoff’s investment firm demanded more than $3.6 billion in damages in an expanded lawsuit against a hedge fund firm and individuals whom he said had helped now-imprisoned Madoff run a massive Ponzi scheme.

Forty-three defendants, including Fairfield Greenwich Group co-founder Walter Noel, were added to the year-old lawsuit filed in the U.S. bankruptcy court in Manhattan by Irving Picard, the court-appointed trustee seeking to repay victims of Madoff’s estimated $65 billion fraud.

In a 217-page complaint that amends his May 2009 lawsuit against three other Fairfield defendants, Picard sought to undo several billion dollars of transfers that Fairfield funneled to Bernard L. Madoff Investment Securities LLC.

The trustee is also trying to recover “many hundreds of millions of dollars” in stolen customer property that he said the Fairfield defendants received from Madoff in return.

“Every dollar the defendants purportedly ‘earned,’ and every dollar they kept to unjustly enrich themselves, was stolen money,” Picard’s lawyers wrote in the complaint.

“The defendants did not properly, independently, and reasonably perform due diligence into the many red flags strongly indicating Madoff was a fraud,” they went on. “The defendants were not victims. They were enablers. They were facilitators. They deepened the pain of Madoff’s customers and their own investors.”

The 43 new defendants include 24 Fairfield affiliates and 19 individuals, including Noel and Fairfield co-founders Jeffrey Tucker and Andres Piedrahita.

Fairfield spokesman Thomas Mulligan said it was “incomprehensible” for Picard to widen his lawsuit while the firm was in “good faith” settlement talks with the trustee.

“We reject absolutely the allegation that Fairfield Greenwich or any of its executives or employees was aware of the fraud or in any way abetted it,” Mulligan said.

Fairfield remains “willing to work towards a settlement that will help all victims of the Madoff fraud move beyond this disaster,” he went on, adding that Fairfield principals themselves lost more than $70 million in the Madoff fraud.

$20 BILLION PRINCIPAL DEEMED LOST

In Tuesday’s complaint, Picard said it now appears there were more than 8,000 customer accounts at Madoff’s advisory business over the life of the Ponzi scheme, and that investors lost $20 billion in principal when the scheme came to light.

He also said Noel, Tucker and Piedrahita received a combined $390 million of partnership distributions in the 2002 to 2008 period while Fairfield was feeding money to Madoff.

Picard, a partner at the law firm Baker & Hostetler LLP, has said that through March 31 he had recovered more than $1.5 billion of assets for Madoff victims.

Fairfield Sentry Ltd, one of the original defendants in Picard’s lawsuit, was put into liquidation in July 2009 after feeding about $7.2 billion of client assets to Madoff.

Last September, Fairfield agreed to pay $8 million to settle claims by Massachusetts residents who invested in the Sentry funds.

Madoff was arrested on Dec. 11, 2008, and pleaded guilty three months later to orchestrating the Ponzi scheme.

The 72-year-old is serving a 150-year sentence in a North Carolina federal prison.

The case is Picard v. Fairfield Sentry Ltd et al, U.S. Bankruptcy Court, Southern District of New York, No. 09-01239. (Reporting by Jonathan Stempel, editing by Gerald E. McCormick, Ted Kerr and John Wallace)

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