US money manager Ezra Merkin has agreed to pay $US410 million to settle a lawsuit brought by New York state that accused him of secretly steering client money to fraudster Bernard Madoff.
The lawsuit claimed Mr Merkin recklessly fed some $US2.4 billion from investors in his funds into Madoff's Ponzi scheme, while claiming he actively managed their money.
Under the agreement, Mr Merkin will pay $US405 million to compensate investors over three years, and the other $US5 million will go to the state.
New York Attorney General Eric Schneiderman says investors may receive over 40% of their losses, and those who did not know Mr Merkin was sending their money to Madoff will get more.
The settlement does not resolve a separate case brought against Mr Merkin by Irving Picard, the trustee seeking money for all of Madoff's victims.
Mr Picard is trying to recover $US500 million that Mr Merkin and his funds withdrew from accounts with Madoff.
Madoff pleaded guilty to perpetrating the largest Ponzi scheme in US history in 2009, and is serving a prison sentence of 150 years.