By Karen Freifeld

NEW YORK (Reuters) - Money manager Ezra Merkin has agreed to pay $410 million to settle a lawsuit brought by the New York attorney general that accused Merkin of steering client money to Ponzi schemer Bernard Madoff, a person familiar with the settlement said on Sunday.

Justice Richard Lowe of New York state court signed off on the settlement on Friday, the person said, and it is expected to be announced on Monday. The person asked not to be identified because of not being authorized to talk about the matter.

Under the agreement, Merkin will pay $405 million to compensate investors over three years, the person said. The other $5 million will go to the state.

Attorney Andrew Levander, who represents Merkin, did not immediately respond to an email seeking comment on Sunday.

Jennifer Givner, a spokeswoman for Attorney General Eric Schneiderman, could not be reached for comment.

The settlement does not resolve a separate case brought against Merkin by Irving Picard, the trustee seeking money for all of Madoff's victims. Picard is trying to claw back $500 million that Merkin and his funds withdrew from accounts with Madoff.

Amanda Remus, a spokeswoman for Picard, did not respond to an email seeking comment on the status of any settlement talks with Merkin over Picard's suit.

The New York lawsuit, brought in 2009 by Andrew Cuomo, the attorney general at the time, said Merkin "recklessly" fed money from investors in his funds into Madoff's Ponzi scheme, while claiming he actively managed their money.

Merkin held himself out as an "investing guru" and collected more than $470 million in management and other fees while he was really a "master marketer," the lawsuit said.

The lawsuit accused Merkin of self-dealing, reckless conduct and gross negligence. It sought restitution and damages and to stop Merkin from serving on any nonprofit organization or as an investment manager.

Merkin had some $2.4 billion invested with Madoff, according to the lawsuit. Continued...