Blue Star Investors, a fund controlled by PE pioneer Thomas H. Lee, was sued by Madoff trustee Irving Picard.  The lawsuit, which seeks to recover about $20 million, is described as a blow to Mr. Lee, who's struggled of late.   This lawsuit was among the 100 filed on Tuesday that are part of the “clawback” actions that Mr. Picard has brought against investors, accusing them of withdrawing more money from the Madoff firm than they had invested.

The lawsuit against Mr. Lee’s firm alleges that since December 2002, it received about $52 million from Mr. Madoff’s firm — of that amount, $19.7 million represented “fictitious profits from the Ponzi scheme.”  “Defendant has received $19,667,135 of other people’s money,” said the lawsuit filed by Mr. Picard, who is a lawyer at Baker Hostetler.  The lawsuit also says that if Mr. Lee received some of this money directly, he would be personally responsible for repaying it.

    Blow to Lee.   The Madoff lawsuit is a blow to Mr. Lee, who initially had great success with his hedge fund investments but has recently struggled.  In 2006 he parted ways with his partners at Thomas H. Lee Partners, the private equity firm that made him a billionaire with fabulous investments like Snapple. His old firm kept Thomas H. Lee’s name, but is no longer connected to Mr. Lee or Blue Star.  Upon leaving private equity, Mr. Lee sought to build his Blue Star fund of fund business, which had investments in more han 100 hedge funds.  At the height of the financial crisis in 2008, Blue Star funds lost about 40% of their assets.

Mr. Lee is also the president of Lee Equity, a PE firm that does smaller, so-called middle market buyouts.  It paid about $180 million this year for Papa Murphy’s, purveyors of Take ‘n’ Bake Pizza.  It also owns the junior-girl fashion retailer Deb Shops.   [NYT Dealbook, 12/1]