The complaint, filed by the New York attorney general, Andrew Cuomo, accused Mr Merkin of lying to clients about Mr Madoff’s dominant role in his hedge fund and improperly collecting more than $470 million in fees - fees that dwarfed his own personal losses in the Madoff fraud - for simply handing his clients’ money to Mr Madoff.

The complaint did not accuse Mr Merkin of knowing about Mr Madoff’s vast fraud. But it charged that he had failed to carry out the diligent research and investigation he had promised, and in some cases had deliberately deceived clients about his investments with Mr Madoff, beginning in 1992.

Moreover, it accused him of having misled his clients for nearly a decade before that by surreptitiously relying on another money manager to run his hedge funds - even after the manager had been jailed for insider trading.

His activies have led to the loss of about $2.4 billion, according to the lawsuit.

A lawyer for Mr Merkin, Andrew Levander, was quoted by the New York Times as calling the complaint “hasty and ill-conceived,” and said his client would vigorously defend himself.