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Madoff trustee now seeks $255 million from family

By Jonathan Stempel

(Reuters) - Members of Bernard Madoff's family were hit with an expanded $255.3 million lawsuit, saying they should have caught the patriarch's Ponzi scheme and must return the benefits to victims.

Irving Picard, the trustee seeking money for Madoff's victims, said family members who worked at Bernard L. Madoff Investment Securities LLC were "completely derelict" in ensuring that the investment firm's operations were legal.

The lawsuit adds three former spouses of Madoff's sons as defendants. Picard said they were unjustly enriched by the scheme through their marriages, and that "equity and good conscience" required that they forfeit money to victims, whom he believes are owed $20 billion overall.

Picard filed his complaint late Friday with the U.S. bankruptcy court in Manhattan, one month after winning court approval to add the spouses. The case has grown from $226.4 million in November, and $198.7 million in October 2009.

The family defendants are Madoff's brother Peter, who was the Madoff firm's chief compliance officer; son Andrew, who was co-director of trading; the estate of son Mark, who was also co-director of trading and committed suicide in December 2010; and niece Shana, a compliance officer.

The spouse defendants are Deborah Madoff, who began divorce proceedings against Andrew Madoff in 2008; Stephanie Mack, Mark Madoff's widow; and Susan Elkin, who divorced Mark Madoff in 2000.

Picard now seeks $90.4 million from Peter Madoff, $81.3 million from Mark Madoff's estate, $73.8 million from Andrew Madoff, $15.3 million from Shana Madoff, $27.7 million from Deborah Madoff, $27.5 million from Mack, and $2.4 million from Elkin. Some claims overlap.

Like many others sued by Picard, the defendants have said the trustee waited too long to bring some of his claims. The family defendants have long said their activities at Madoff's firm were legitimate, and that Bernard Madoff betrayed them.

Bernard Madoff was arrested on December 11, 2008, and pleaded guilty three months later. Now 74, he is serving a 150-year term in a North Carolina prison.

Litigation has prevented Picard from distributing much of the $9.1 billion he has recovered for victims. Just $1.1 billion has been distributed, including $791 million from the Securities Investor Protection Corp, Picard said in a April 25 filing.

The trustee is appealing several court decisions dismissing many of his biggest claims, largely against banks that dealt with Bernard Madoff. Through March 31, the cost of winding down Madoff's firm totaled $553.7 million, including $272.8 million of fees and expenses for Picard and his law firm.

The case is Picard v. Madoff et al, U.S. Bankruptcy Court, Southern District of New York, No. 09-ap-01503.

(Reporting By Jonathan Stempel in New York; Editing by Maureen Bavdek)

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