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NEW YORK, Feb 17 (Reuters) - Hedge fund founder Ezra Merkin engaged in "deliberate ignorance" to benefit from investing client money with Bernard Madoff, a lawyer for a university suing Merkin and his funds said on Tuesday.
A lawyer for New York University (NYU) made the assertion in New York State Supreme Court, where a judge last month temporarily barred Merkin from liquidating his Ariel Fund Ltd, a defendant in a lawsuit brought by NYU related to the alleged Madoff fraud.
A lawyer for Merkin told the court that according to the Ariel Fund prospectus, Merkin had the right to invest client money with third parties. He has said Merkin and his funds were victims of the purported Madoff fraud.
Madoff, a once-respected Wall Street trader and investment manager, was arrested and charged in December after authorities said he confessed to a $50 billion global fraud. He is the only person charged in criminal and civil cases.
NYU, the largest private U.S. university and among many institutions and individual investors seeking to recover losses in the Madoff scandal, said in its December lawsuit that it lost $24 million when funds run by Merkin invested money with Madoff without its consent.
"He engaged in deliberate ignorance in order to line his pocket; that's what he did wrong," NYU lawyer Beth Kaswan told Justice Richard Lowe in court on Tuesday.
Besides Ariel, the lawsuit also names Merkin and another fund, Gabriel Capital Corp, as defendants. In January, Merkin resigned as chairman of GMAC LLC so the finance company would be eligible to receive U.S. taxpayer funds.
"The essence of this case is bare displeasure," Merkin's lawyer Andrew Levander said in court. "I understand that they are upset, but that doesn't mean they have a cause of action."
The judge did not immediately rule on the funds' motions to dismiss the lawsuit or whether or not to continue his earlier order restraining Ariel Fund activities.
"I will render a decision as soon as I can," Lowe said, without giving a specific date.
Lowe was also told by the NYU lawyer that one of Merkin's advisers was a convicted felon who had worked for Merkin while in prison. The adviser, Victor Teicher, also told Merkin that Madoff's returns "smelled" and "were not possible."
Merkin has also been sued in U.S. District Court in Manhattan for his management of Ascot Partners LLP, a fund he founded that lost an estimated $1.8 billion with Madoff.
The case is New York University v. Ariel Fund Ltd 603803/2008 in New York State Supreme Court (Manhattan)