J. Ezra Merkin,agreed on Tuesday to cede control of three of his hedge funds to a liquidator.

J. Ezra Merkin, the prominent New York financier who lost more than $2.4 billion of his clients’ money in Bernard L. Madoff’s Ponzi scheme, agreed on Tuesday to cede control of three of his hedge funds to a liquidator.move comes at the request of New York’s attorney general, Andrew M. Cuomo, who last month charged Mr. Merkin with lying to his clients about how he was investing their money.At a hearing in New York State Supreme Court on Tuesday, Justice Richard Lowe gave Mr. Cuomo’s office and Mr. Merkin’s lawyers until May 28 to complete the agreement. Under the preliminary deal, Mr. Merkin will hand day-to-day control of two funds, Ariel and Gabriel, to Guidepost Partners, which will oversee the liquidation of more than $1 billion in assets remaining in the funds. Many of the assets in the funds are hard to sell, and most are managed by other subadvisers, including the private equity fund Cerberus Capital Management.Control of Mr. Merkin’s Ascot Fund, which invested nearly all of its assets with Mr. Madoff, will be turned over to David Pitofsky, a litigation lawyer who was once a corporate fraud investigator for the federal prosecutor’s office in New York. The fund, whose investors included Tufts University, Bard College and Yeshiva University, had $1.7 billion invested with Mr. Madoff. While there is little left in the Ascot fund, Mr. Pitofsky will oversee any recovery efforts.“As part of his continuing efforts to maximize the returns to investors in the funds, Mr. Merkin has agreed in principle to appoint Guidepost Partners, a leader in global investigations, security and compliance, as the receiver for the funds while he remains available to consult regarding the wind-down at no cost to the funds,” Andrew J. Levander, a lawyer for Mr. Merkin, said in a statement.
Mr. Cuomo’s complaint does 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.
“Merkin’s deceit, recklessness, and breaches of fiduciary duty have resulted in the loss of approximately $2.4 billion,” according to the complaint filed by Mr. Cuomo’s office in April, which opened an investigation of Mr. Merkin soon after the Madoff scheme collapsed in mid-December.Mr. Levander has called the charges “hasty and ill-conceived” and said Mr. Merkin would defend himself vigorously.Mr. Merkin, the former chairman of GMAC, is also being sued by New York University, which requested months ago that he relinquish control over the Ariel fund. The university, which lost $24 million of its investment in Ariel, is suing Mr. Merkin for turning over a portion of its money to Mr. Madoff without disclosing the arrangement to Ariel’s investors. The Ariel fund is not related to Ariel Investments of Chicago. Beth Kaswan, a lawyer for N.Y.U., said the university is reviewing the proposed agreement.
Mr. Merkin collected more $470 million for managing three funds, Ariel, Gabriel and Ascot Partners, over the last decade.In the lawsuit with N.Y.U., Mr. Merkin’s lawyers proposed in February a plan to form an “oversight committee” that would evaluate the liquidation of several funds under his control — a process that will likely take years. Mr. Merkin has also been sued by New York Law School and the publishing executive, Mortimer B. Zuckerman, over his losses connected to Mr. Madoff.J. Ezra Merkin, the hedge fund manager who invested billions of dollars of his clients' money with Wall Street swindler Bernard Madoff, has agreed to relenquish control of his funds to court-appointed trustees.

The attorney general's office had requested the turnover agreement in connection with its civil fraud lawsuit accusing Merkin of convincing clients he was managing their money when he was actually funneling $2.4 billion to Madoff's ponzi scheme.

The deal, which was discussed in court Tuesday and was expected to be approved by a judge on Thursday, is not a settlement in the case, the attorney general's office said.Lawyer Andrew Levander said in a statement the handover was part of Merkin's "continuing efforts to maximize the returns to investors" and "provide certainty and stability during the previously announced wind-down of the Ariel and Gabriel Funds."Those funds are to be handed over to Guidepost Partners LLC, while Merkin's Ascot Partners fund is to be placed under the control of David Pitofsky, a litigation lawyer who was once a corporate fraud investigator for the federal prosecutor's office in New York. The two court-appointed trustees are expected to oversee the funds' eventual liquidation.Ascot Partners was one of the biggest feeders to Madoff's scheme. The fund had a $1.7 billion account with Madoff, including deposits from New York University, Tufts University, Bard College and Yeshiva University, where Merkin was a trustee.The trustee overseeing the liquidation of Madoff's assets has sued Merkin and accused him of knowing Madoff was a fraud. Merkin's lawyer has contested that claim and said his client's investors knew exactly where their money was going.Cuomo's office has claimed Merkin improperly mixed personal funds with the accounts of his management company, Gabriel Capital Group, and used some company money for personal purchases, including $91 million worth of artwork for his apartment.In April, weeks after Madoff pleaded guilty to conning thousands of investors out of billions of dollars, Merkin filed court papers agreeing not to sell off the artwork, one of the world's largest private collections of work by abstract painter Mark Rothko.