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NEW YORK — J. Ezra Merkin, the hedge fund manager who invested billions of dollars of his clients' money with Wall Street swindler Bernard Madoff, has agreed to relinquish control of his funds to court-appointed trustees.
The attorney general's office had requested the turnover agreement in connection with its civil fraud lawsuit accusing Merkin of convincing clients he was managing their money when he was actually funneling $2.4 billion to Madoff's Ponzi scheme.
The deal, which was discussed in court Tuesday and was expected to be approved by a judge on Thursday, is not a settlement in the case, the attorney general's office said.
Lawyer Andrew Levander said in a statement the handover was part of Merkin's "continuing efforts to maximize the returns to investors" and "provide certainty and stability during the previously announced wind-down of the Ariel and Gabriel Funds."
Those funds are to be handed over to Guidepost Partners LLC, while Merkin's Ascot Partners fund is to be placed under the control of David Pitofsky, a litigation lawyer who was once a corporate fraud investigator for the federal prosecutor's office in New York. The two court-appointed trustees are expected to oversee the funds' eventual liquidation.
Lawyer Harry Susman, who has sued Merkin on behalf of a number of investors in the Ascot and Gabriel funds, called Tuesday's agreement "welcome news for everyone."
"There's obviously a huge lack of trust," he said. "He was just giving the money to other people ... and so you really kind of wonder what was the point of having him around in the first place."
The trustee overseeing the liquidation of Madoff's assets, Irving Picard, has said Merkin received tens of millions of dollars in management and performance fees. One Merkin investor alleged in a court filing that the total surpassed $100 million.
Picard, who declined to comment on Tuesday's developments, has sued Merkin and said he knew or should have known that Madoff was a fraud.
But Levander has said Merkin was duped just like Madoff's other investors, and he has said Merkin's clients knew exactly where their money was going.
Ascot Partners was one of the biggest feeders to Madoff and was entirely wiped out in his Ponzi scheme, in which investors are paid off with money from new clients. The fund had a $1.7 billion account with Madoff, including deposits from New York University, Tufts University, Bard College and Yeshiva University, where Merkin was a trustee.
The office of New York Attorney General Andrew Cuomo has claimed Merkin improperly mixed personal funds with the accounts of his management company, Gabriel Capital Group, and used some company money for personal purchases, including $91 million worth of artwork for his apartment.
In April, weeks after Madoff pleaded guilty to conning thousands of investors out of billions of dollars, Merkin filed court papers agreeing not to sell off the artwork, one of the world's largest private collections of work by abstract painter Mark Rothko.
