Ezra Merkin, a money manager and leading member of New York’s Modern Orthodox Jewish community, has been accused of channeling $2.4 billion of clients’ money into Bernard Madoff's Ponzi scheme.

Andrew Cuomo, the New York Attorney General, today charged the managing partner of Gabriel Capital Group and former GMAC Financial Services chairman with civil fraud. Mr Cuomo alleged that Mr Merkin: "profited enormously from Madoff's scheme, reaping huge commissions while investors lost all their money."

The complaint, filed in New York State Supreme Court, said investors, including several prominent charities and non-profit organisations, entrusted their investments to Merkin. The hedge fund manager then steered client money to Madoff without their permission, in exchange for $470 million in fees, Mr Cuomo contends.

Mr Merkin's three funds are Ascot Partners LP with Ascot Fund Ltd, Gabriel Capital Corp and Ariel Fund Ltd.

Mr Cuomo does not allege that Mr Merkin was aware of Madoff's scheme.

Known as “the Rabbi” within the wealthy Modern Orthodox community, Mr Merkin gave Madoff access to a lucrative number of charities, schools and wealthy synagogue members. Mr Merkin is the president of the Fifth Avenue synagogue - the richest of its kind in America.

While Mr Madoff is Jewish, he never visited the Fifth Avenue Syngogue himself.

Several investors have already sued him, including New York University, which claimed it had lost at least $24 million as a result of investing with Madoff via Mr Merkin’s Ascot Partners fund.

Mr Cuomo launched his investigation into Mr Merkin in January,

Andrew Levander, the lawyer for Mr Merkin, tonight denied that the money was funnelled into Madoff's scheme without investors' knowledge. He also claimed that Mr Merkin performed "extensive due diligence" on Madoff and his trading strategy but was "thwarted by the intricate, fraudulent scheme perpetrated by Madoff".

"We are disappointed that the Attorney General of the State of New York has filed this hasty and ill-conceived civil lawsuit, against which we intend to defend vigorously," Mr Levander said. "From the outset of the Attorney General’s investigation, Mr Merkin, Gabriel Capital Corporation, and the funds they manage have provided their full cooperation, answering all questions and producing hundreds of thousands of documents.

He added: "The evidence shows that this lawsuit is without merit. Contrary to the Attorney General’s allegation, investors in the Ascot Funds were well aware that the money was being invested with Madoff. Furthermore, investors in all of the Funds expressly authorised Mr Merkin to allocate assets to third party managers such as Madoff, without giving them notice or obtaining their consent.

"Mr Merkin performed extensive due diligence on Madoff and his trading strategy, and in addition arranged meetings with Madoff for many investors to perform their own due diligence. Unfortunately, Mr Merkin's due diligence, just like the detailed investigations performed by countless others, including regulators, was thwarted by the intricate, fraudulent scheme perpetrated by Madoff,” he said.

Mr Madoff remains in the Manhattan Correctional Centre, awaiting sentencing in June on 11 criminal counts to which he pled guilty last month.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive