A father and son hedge fund team that wooed clients with its ties to the Massachusetts Institute of Technology but then put some money into Bernard Madoff's Ponzi scheme will pay $4.8 million to settle charges they lied about their records and how they would make money, Reuters reported, citing security regulators.

Gabriel Bitran, a professor of operations management at MIT, founded GMB Capital Management in 2005 and with his son, Marco, raised more than $500 million from wealthy investors who wanted a piece of the MIT's professor's exclusive computer models which the pair said had delivered years of lucrative returns.

However, neither claim was accurate, the Securities and Exchange Commission said, noting that instead of investing the money themselves, they gave a chunk to other firms which turned out to be frauds.

The report is yet another example of how investment managers and wealth firms have been caught up in the Madoff scandal, the biggest of its kind to surface in the aftermath of the 2008 credit crunch.

"The Bitrans lied to investors about what they had done, and they lied to investors about what they would do. Then, when the SEC began an exam, they lied to the exam staff as well," said David Bergers, Director of the SEC's Boston regional office.

To settle the civil case, where the pair neither admitted nor denied the SEC's findings, the father and son will disgorge $4.3 million, pay a $250,000 fine each and be barred from the securities industry, the SEC said, according to the news service.

The Bitrans told tales of how the MIT professor would spend 80 per cent of his time managing the funds and review trades on a daily basis, when in fact, he played no part in managing any hedge fund, the SEC said.

The Bitrans boasted strong resumes with degrees from MIT and Harvard and work experience at Wellington Management. GMB Capital's tony address in one of Boston's most vaunted downtown office buildings added to the image that the father and son had all the tools to make their investors' fortunes grow.

The pair fabricated track records showing annualised returns of 16.2 per cent and 11.7 per cent for the two funds with no down years.