'Feeder fund' charged
The news comes as the authorities in the US state of Massachusetts filed civil fraud charges against a "feeder fund" known as Fairfield Greenwich Group which was linked to Madoff.
William Galvin, the Massachusetts secretary of state, said in the civil complaint that there was a "profound disparity" between the due diligence checks Fairfield told clients it was making on Madoff and those actually made.
Galvin did not say how many Massachusetts residents were affected or how much money had been lost.
He is asking that Fairfield Greenwich return the fees that investors paid and the money they invested, as well as pay an administrative fine.
However Fairfield Greenwich said in a statement the allegations were false and misleading and that it planned to "vigorously" contest them.
On Tuesday a judge in the US state of Connecticut froze the assets of Madoff's sons and five top hedge fund industry officials, including three Fairfield Greenwich executives.