The trustee seeking money for victims of Bernard Madoff's Ponzi scheme has sued Tremont Group Holdings for $2.1 billion, saying it missed warning signs the business could be a fraud.

Irving Picard accused Tremont of missing red flags and blindly relying on Madoff to drive their funds' returns for nearly 15 years, according to an amended complaint filed on Monday in the federal bankruptcy court in Manhattan.

The allegations were revealed after a group of funds affiliated with Tremont, which is part of Massachusetts Mutual Life Insurance Co, reached a $100 million settlement in separate litigation with former Madoff investors.

Tremont and its now defunct Rye Investment Management unit lost more than $3 billion of client money funneled to Madoff and his firm Bernard L. Madoff Investment Securities LLC.

Picard alleged Tremont earned as much as $240 million in fees tied to Madoff, including more than $180 million in the six years before the fraud was uncovered in December 2008.

If the defendants were ignorant of the fraud, it was because they failed in their due diligence and investment management obligations, Picard said. They quite simply did not want to know, remaining willfully ignorant in order to maximize their own profits and serve their own self-interest.

The $2.1 billion includes alleged fraudulent transfers, fictitious profits and other sums, the amended complaint said. Picard's original case was filed under seal in December.

Our position is unchanged, which is that we acted capably and appropriately, Tremont spokesman Montieth Illingworth said.

The $100 million settlement followed mediation, and could grow by $50 million as other Tremont funds wind down and separate litigation is resolved.

Picard has recovered about $10 billion for former Madoff customers. He has filed lawsuits seeking tens of billions of dollars against defendants, including JPMorgan Chase & Co and owners of the New York Mets baseball team.

Madoff pleaded guilty in March 2009 to running a Ponzi scheme that prosecutors estimated at $65 billion. He is serving a 150-year prison sentence.

The case is Picard v. Tremont Group Holdings Inc et al, U.S. Bankruptcy Court, Southern District of New York, No. 10-ap-05310.

(Reporting by Jonathan Stempel in New York; editing by Andre Grenon)

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