New York Attorney General Andrew M. Cuomo filed a lawsuit Tuesday against a Bank of New York Mellon Corp. unit and two of its executives alleging they “deliberately” mislead clients about investments tied to Bernard L. Madoff.

The suit alleges that Ivy Asset Management LLC, its former Chief Executive Officer Lawrence Simon, and its former Chief Investment Officer Howard Wohl, deliberately “kept clients in the dark about damaging financial information about Madoff so Ivy could bring in millions in advisory fees.”

According to the lawsuit that was filed in N.Y. state supreme court in Manhattan, Ivy was paid over $40 million between 1998 and 2008 to give advice and conduct due diligence for clients with large Madoff investments.

The lawsuit said that while conducting this due diligence, Ivy learned Madoff was not investing funds as advertised, but internal e-mails indicated that Ivy did not disclose this information to clients for fear of losing revenue from fees. 

As a result, Ivy’s clients lost over $227 million after Madoff’s Ponzi scheme collapsed in December 2008. Among the victims were hundreds of investors as well as dozens of New York union pension and welfare plans.

The suit said 76 upstate New York union pension and welfare plans lost more than $150 million due to the alleged fraud, with investors overall losing more than $227 million.

“Ivy and its former co-principals saw the trouble with Madoff coming around the bend, but instead of guiding their clients through the financial waters, they sold them down the river,” Cuomo said in a press release. “These defendants violated their basic responsibility as investment advisers by putting their own financial interests ahead of their clients. They shamelessly profited off of their own clients’ impending misfortune and we are holding them accountable for their actions.”

Ivy knew about problems with Madoff’s investment strategy as early as 1997, according to Cuomo suit, which alleges the New York-based unit of BNY Mellon [BK], gave "stronger warnings" about concerns to clients whose relationship with Ivy wasn't as dependent on Madoff.

BNY Mellon bought Ivy in 2000. The suit alleges Simon and Wohl each obtained more than $100 million as a result of the sale. Earlier this year, BNY Mellon began to liquidate Ivy, which is also facing private civil lawsuits regarding the Madoff case. In March, a New York judge declined to dismiss a suit against Ivy and a money manager it advised, Andover Associates Management Corp.

Cuomo’s lawsuit, which seeks payment of restitution, damages and penalties, as well as disgorgement of fees Ivy received, charges the company, Simon, and Wohl with violating New York’s Martin Act for fraudulent conduct in connection with the sale of securities; violating Executive Law 63(12) for persistent fraud in the conduct of business and for persistent illegality; and breaching their fiduciary duty in connection with the advice they gave to their clients.

BNY Mellon said in a statement that the complaint "relates to non-discretionary advisory services that Ivy provided to a limited number of professional investment advisors who, in turn, chose to invest their own clients’ assets with Bernard L. Madoff Investment Securities. 

BNY Mellon said Ivy previously notified its clients that it was winding down its remaining fund of hedge funds business.

“These non-discretionary advisory clients were primarily professional investment advisors who chose to maintain Madoff exposure for their own clients," Douglas Squasoni, the chief restructuring officer for Ivy, said in a statement. "Ivy informed its clients that it had questions about Madoff that it could not answer and recommended to its clients that they reduce their exposure to Madoff.”

Squasoni said BNY Mellon has been cooperating with Cuomo's investigation and the company intends to defend itself against the claims.

“The non-discretionary advisory business that is the focus of this complaint was never part of Ivy’s core proprietary fund of hedge funds business, and is no longer in operation.  Further, the Ivy executives involved in this matter left the company in 2008," he said.