Madoff trustee Irving Picard unsealed an amended lawsuit against investment manager Tremont Group Holdings and a group of funds it managed, charging they repeatedly ignored "red flags" that Bernie Madoff's business could be a fraud.  He's seeking the return of more than $2.1bn in transfers to Tremont and its affiliates.

Tremont reportedly earned more than $180mn in fees in the 6 years before Madoff's fraud came to light in December 2008 and as much as $240mn over the life of the relationship.  A spokesperson for Tremont said, "Our position is unchanged, which is that we acted capably and appropriately."

    Allegations.   Filed under seal in December, and amended this week, the suit makes the following allegations:

• Tremont or its affiliates helped funnel more than $4bn over a 15-year period to Madoff's firm, making it the 2nd-largest set of feeder funds to Madoff. 
• Tremont and its subsidiaries failed to perform independent, reasonable and meaningful due diligence of Madoff or his purported split-strike investment strategy.
• "They quite simply did not want to know, remaining willfully ignorant in order to maximize their own profitsand serve their own-self interest." 
• Tremont failed to carry out its fidicuary duties to investors and didn't seriously consider significant operational deficiences of Madoff's operation - many that were "highly suspicious" and likely indicated a fraud.
• "Every cent of the billions they accepted in withdrawls and fees over the course of their relationship with Madoff was money stolen from other [Bernard L. Madoff Investment Securities] customers."

Tremont, which is being wound down, is a subsidiary of Oppenheimer Acquisition Corp., a unit of MassMutual Life Insurance Co. Mr. Picard also has sued Oppenheimer and MassMutual as part of the lawsuit.

Separately, Tremont and its subsidiaries agreed last week to pay $100 million to establish a settlement fund to compensate investors in its funds who allegedly lost money to Madoff.  Tremont and its subsidiaries continue to deny wrongdoing.  That settlement could increase in size following the wind-down of Tremont and its subsidiaries and potential recoveries from litigation that Tremont is pursuing against 3rd parties, according to a court filing last week.   [WSJournal, 3/1]