Massachusetts regulators are seeking the return of hundreds of millions of dollars in fees from parties including the Bermuda unit of Fairfield Greenwich - a feeder fund for Bernard Madoff - for allegedly misleading investors.

In an administrative complaint filed on April 1, the Enforcement Section of the Massachusetts Securities Division is also seeking a fine and an order requiring respondents Fairfield Greenwich (Bermuda) Ltd. and Manhattan-based Fairfield Greenwich Advisors LLC to pay full restitution to all Massachusetts investors who put money into the feeder funds.

Madoff is in jail awaiting sentencing after pleading guilty to swindling thousands of investors of billions of dollars in what could be the biggest scam in Wall Street history. He faces a maximum sentence of 150 years behind bars. Fairfield Greenwich invested over 95 percent of its Sentry Funds' $7.2 billion in assets in Bernard L Madoff Investment Securities. "This complaint is based on a profound disparity between the due diligence Fairfield represented to its investors that it would conduct with respect to Bernard L. Madoff Investment Securities LLC and the due diligence it actually conducted, as well as misrepresentations to investors in its Sentry funds about Fairfield's degree of knowledge and comfort with respect to Madoff's operations," stated the regulator.

"This complaint is also based on the lack of an arms-length relationship between Fairfield and Madoff Investments and the failure of Fairfield to disclose to investors the interconnected relationship between Fairfield and Madoff Investments. Fairfield's complete disregard of its fiduciary duties to its investors and its flagrant and recurring misrepresentations to its investors rises to the level of fraud."

Online newsletter OffshoreAlert reported that despite the fact that the Madoff group did not conduct a single trade for at least the last 13 years of its existence and was audited by a one-person firm operating from a strip mall in New York City, Fairfield represented to investors that everything was above-board and "the due diligence Fairfield supposedly undertook with respect to Madoff Investments was a cornerstone of its marketing efforts", according to the complaint.

"Fairfield and its key personnel claim to have had no idea whatsoever that Madoff was anything other than the legitimate broker and brilliant market-timer they promoted him as," stated the regulator.

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"The Division's investigation attempted to discern how Fairfield possibly could not have discovered the fraud during their 18-year relationship. The answer, quite simply, is that they were blinded by the fees they were earning, did not engage in meaningful due diligence and turned a blind eye to· any fact that would have burst their lucrative bubble."

The complaint went on: "In stark contrast to the promises made in its marketing materials and in statements made to clients, Fairfield neglected to do any meaningful check into whether Madoff was actually making the trades he said he was making or actually holding the assets he said he was holding on behalf of Sentry clients. Fairfield acquiesced to the unusual relationship whereby Madoff served as both the sub-custodian of the assets and the executing broker, which made it so when Fairfield checked the custodian's records against the broker's records, it was checking information received from Madoff against other information received from Madoff without third-party corroboration. Both Amit Vijayvergiya, Fairfield's chief risk officer, and Dan Lipton, Fairfield's CFO, acknowledged that this was a "risk" or a "risk factor", but that risk factor was not specifically disclosed to investors.

The Massachusetts Securities Division produced a transcript of a telephone conversation that took place in December, 2005 between Madoff and Fairfield's General Counsel, Mark McKeefrey, and chief risk officer, Amit Vijayvergiya, that began with Madoff stating "Obviously, first of all, this conversation never took place, Mark, okay?" and Vijayvergiya responding with: "Yes, of course."

"Having received detailed instructions from Madoff as to what to tell SEC examiners, Fairfield could not possibly in good faith have relied on the fact that Madoff had a spotless record with the SEC as a basis for believing its assets were being properly supervised at Madoff Investments," stated the Massachusetts regulator in its complaint.

According to the Massachusetts regulator, Fairfield's relationship with Madoff was so cozy that it gave Madoff proprietary information, including the names of specific investors in the Sentry funds, and "even told him that it was suspending redemptions in two of its funds before Fairfield told the investors in those funds", it was alleged. "However, the most telling indicia of the interconnected, co-dependent relationship between Fairfield and Madoff occurred when things began to fall apart.

"In October, November and December of 2008, Madoff reversed his longstanding policy with Fairfield of limiting the amount of money Fairfield could invest with Madoff and, instead, began to react angrily when Fairfield gave him information regarding a significant amount of redemptions in the Sentry fund.

"In response, Fairfield redoubled its marketing efforts to 'defend' against redemptions. In addition, Fairfield personnel quickly worked with Madoff to set up new funds 'the BBH Emerald fund and the Greenwich Emerald fund' to funnel money to Madoff. "

According to the regulator, "Fairfield earned a fee of one percent of assets under management for assets invested in the Sentry funds, and a performance fee of 20 percent of the returns of those funds," stated the regulator. "Jeffrey Tucker, a founder of Fairfield, estimated that Fairfield earned approximately $100 million per year from those fees in each of 2008, 2007 and 2006. Gordon McKenzie, Fairfield Bermuda's controller, in his testimony with the Division, put the figure at over $100 million for each of 2008, 2007, 2006 and 2005. Tucker testified that he earned in the range of $100 million from Fairfield's relationship with Madoff Investments over the last 10 years.

"However, documents produced to the Division indicate that the principals of Fairfield made substantially more. For example, a document titled Partner Comp Worksheets 2008 produced by Fairfield appears to indicate that in 2007 alone Andres Piedrahita (Fairfield Partner and son-in-law of Fairfield founding partner Walter Noel) earned in excess of $45 million and Tucker and Noel earned in excess of $30 million.

In written "Standardized Responses" to questions from the regulator, Fairfield Sentry Ltd. stated that its investment manager, Fairfield Greenwich (Bermuda) Ltd. was incorporated in Bermuda on June 13, 2003 and identified the following FGBL employees as being involved in the "management, operations, risk control and accounting" process for the Fund: Amit Vijayvergiya, partner, chief risk officer; Disha Attavar, vice-president, analyst; Clare Wood, senior risk officer; Bjorn Axelsson, senior vice-president, risk analyst; and Ryan Amlin, vice-president, senior fund accountant.

FGBL's "Back Office Team" was identified as Gordon McKenzie, director and controller and Ryan Amlin, while members of Fairfield Sentry's risk department were identified as Amit Vijayvergiya, Bjorn Axelsson, Clare Wood, Disha Attavar, Charles Oddy, director, senior risk officer, and Elizabeth Cotlebrooke, vice-president.