Published: Saturday, 3 Oct 2009 | 1:37 AM ET

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AP Madoff's brother, Peter, was sued Friday in relation to his brother's multi-billion dollar Ponzi scheme.

The bankruptcy trustee trying to recover assets from the Bernard Madoff Ponzi scheme says Madoff's relatives used the firm "as if it were the family piggy bank."

Irving Picard is suing Bernard Madoff's sons Mark and Andrew, his brother Peter, and his niece Shana for $198.7 million. That is the amount Picard says the family members received from Madoff's investment advisory business — $141 million of it in the last six years.

All four of the family members worked for Madoff. Madoff's brother Peter was a senior managing director and chief compliance officer. Peter's daughter Shana — Bernard Madoff's niece — was the firm's compliance director.

Andrew and Mark Madoff directed their father's trading operation — which Bernard Madoff has claimed was legitimate and separate from his fraudulent investment advisory business.

"Simply put, if the Family Members had been doing their jobs — honestly and faithfully — the Madoff Ponzi scheme might never have succeeded, or continued for so long," Picard's suit says.

Picard's suit says the family members misappropriated "customer funds" through a variety of means, from using them to buy multi-million dollar homes to simple transfers to their own bank accounts.

An attorney for Madoff's sons called the suit "baseless."

"Mark and Andrew Madoff had no prior knowledge of Bernard Madoff's crimes and contacted the U.S. Department of Justice and the SEC immediately after their father told them he had defrauded his investment advisory clients," said attorney Martin Flumenbaum in a written statement. "By immediately turning him in, the brothers saved the victims more than $170 million that their father was about to distribute."

Contrary to Picard's allegations, Flumenbaum says the sons "suffered substantial economic losses as a result of their father's crimes."

A spokesman for Shana Madoff issued a statement Friday night suggesting there may be room for a settlement.

"Ms. Madoff intends to cooperate with the Trustee and hopes that they can reach a satisfactory resolution," the statement said.

An attorney for Peter Madoff was out of the office and unavailable for comment.

The complaint alleges that Peter Madoff received around $60.6 million from the scheme, the largest portion — $20 million — in salary and bonuses between 2001 and 2008. He redeemed another $16.2 million from his Madoff accounts, despite investing only $32,146 — all but $14 of it before 1995.

Mark Madoff allegedly received nearly $67 million, which he allegedly used to purchase homes in Manhattan, Nantucket, and Greenwich, Connecticut. Customer funds "paid for all aspects of his lavish lifestyle, from the purchases of his high-end homes to the mattress and box spring he slept on," the complaint says.

Andrew Madoff allegedly received $60.6 million, more than half of it in salary and bonuses—$9 million in bonuses in 2007 alone. Both Andrew and Mark Madoff are seeking tens of millions of dollars more in deferred compensation they say they the firm owes them.

Shana Madoff received the least amount of money according to the complaint: around $10.6 million. The complaint says $3.8 million of the money was paid in salary and bonuses between 2001 and 2008. Another $6 million in what the complaint calls "fraudulently diverted funds" were used to pay for a home in East Hampton, New York; rent on an apartment, interior decorating, personal expenses and ownership stakes in two Madoff-related businesses.

The suit is one of several Picard has filed in hopes of recovering money for Madoff's victims. Previously, Picard sued Madoff's wife Ruth for $45 million. He has also sued Madoff investors including Stanley Chais, Jeffry Picower and Ezra Merkin. All have claimed that they, too, were victims of Madoff's fraud.

So far, Picard has recovered around $1.5 billion for investors.

Bernard Madoff, who pleaded guilty to running a $65 billion Ponzi scheme, is serving a 150-year sentence at a federal prison in Butner, North Carolina.

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