Irving Picard, the trustee for Bernie Madoff's victims reached a $1 billion settlement with liquidators for three "feeder" funds tied to Fairfield Greenwich Group, the largest feeder of cash to Madoff's ponzi scheme, allowing higher payouts to the swindler's former customers.  The liquidators also agreed to pay $70 million to a fund for former customers of Bernard L. Madoff Investment Securities LLC.

Picard also agreed not to pursue $3.8 billion he said the Fairfield funds withdrew in the last six years of Madoff's fraud, citing the funds' "limited ability to pay cash toward any judgment" for that decision.

Monday's settlement reduces claims that the liquidators have against a fund that Picard administers for former Madoff customers. Claims by the largest fund, Fairfield Sentry Ltd, will be reduced to $230 million from $1.2 billion, he said.

The liquidators also agreed to let Picard pursue claims against Fairfield owners and management, with 15 percent of recoveries above $200 million going to investors in the Fairfield Sentry, Fairfield Sigma and Fairfield Lambda funds.

Picard has been trying to stop other parties from pursuing lawsuits to recover money for Madoff victims, saying these efforts are at cross-purposes with his own.

"The trustee is confident that combining forces with the joint liquidators enables the potential recovery of billions in additional dollars for the ultimate benefit of the BLMIS customer fund," Picard's lawyer David Sheehan. Both are partners at Baker & Hostetler LLP.

Monday's settlement requires approval by U.S. Bankruptcy Judge Burton Lifland in New York and a court in the British Virgin Islands, where the now-defunct Fairfield funds were based. A hearing before Lifland is set for June 7.

Picard has said he has recovered more than $7.6 billion, or 44 percent of the $17.3 billion that former Madoff customers lost, but that most cannot be paid out because of litigation.

Madoff, 73, was arrested on December 11, 2008. He is serving a 150-year sentence in a North Carolina federal prison.

The case is In re: Bernard L. Madoff Investment Securities LLC, U.S. Bankruptcy Court, Southern District of New York, No. 08-01789. [Reuters]