Galvin won’t settle Madoff case

Fairfield had offered to reimburse Massachusetts clients identified by Galvin for their Madoff losses, a little less than $6 million in total, according to a copy of the company’s settlement offer obtained by the Globe.

People involved in the case said the two sides have identified fewer than a dozen Massachusetts investors who would receive Fairfield’s offer of repayment.

But Galvin, the state’s chief securities regulator, said he is trying to determine if other Fairfield Greenwich investors in Massachusetts were victims of Madoff. He still wants to hold a hearing in Boston on the charges that’s scheduled for Sept. 9, to which he has summoned Fairfield Greenwich’s top executives to testify.

In an interview, Galvin said Fairfield appeared to be trying to avoid the hearing with its settlement offer.

“We don’t think what they filed was proper or responsive,’’ Galvin said. “They definitely do not want a hearing on this matter. We’ll insist on it.’’

In its settlement offer, Fairfield said it is willing to repay Massachusetts investors so it can concentrate on much larger claims. The New York hedge fund has acknowledged that $7 billion in client funds were stolen by Madoff, and said it faces “hundreds of millions if not billions of dollars in claims from thousands of investors because of Madoff’s massive fraud,’’ according to documents it filed with the state Wednesday.

Mark Stein, a New York attorney representing Fairfield, expressed dismay at Galvin’s rejection.

“This is a sideshow and a distraction,’’ he said of the Massachusetts case. Fairfield, he said, is “exploring all possible avenues to avoid a full-blown hearing when it involves such a small percentage of Fairfield Sentry investors.’’

Galvin’s Securities Division filed fraud charges against Fairfield in April on behalf of about a dozen Massachusetts investors, including Charles O. Wood III and Miriam M. Wood, philanthropists who are benefactors of the Harvard Art Museum. They are expected to testify at the September hearing.

Galvin is expected to use the hearing to force Fairfield to explain e-mails and other evidence he has uncovered that appear to show company officials knew about potential problems with Madoff but failed to disclose them to clients.

For example, the firm’s executives were coached by Madoff to dodge questions in a Securities and Exchange Commission inquiry in 2005, according to a transcript of a telephone conversation included in Galvin’s complaint.

More recently, as the 2008 stock market collapse gathered steam, Fairfield clients pressured the firm to explain Madoff’s operation and strategy. The executives could not answer many of these questions, and acknowledged in internal e-mails the gaps in their knowledge. Yet, according to Galvin’s complaint and pre-hearing memorandum, they continued to assure customers they had done ample due diligence.

Nonetheless, some clients did pull money from Fairfield, prompting executives to hold a meeting with Madoff in October. Madoff refused to answer many basic questions, including the names of traders working on Fairfield’s account, according to Galvin’s filings. This and other events, Galvin said, should have been red flags for Fairfield principals, who earned $300 million in fees from clients invested with Madoff in the last three years alone.

Fairfield Greenwich had an 18-year relationship with Madoff and lost more with the convicted swindler than any other firm. The company has said it was a victim of Madoff and knew nothing of his multibillion-dollar Ponzi scheme.

In its offer to Galvin, Fairfield said it admits to no wrongdoing but wants to settle the matter “to avoid the time and expense of a hearing and any subsequent appeals.’’

The firm also disclosed it is in settlement discussions with Irving Picard, the Madoff bankruptcy trustee. He has sued Fairfield’s Sentry Funds to recoup money for other victims of Madoff. Fairfield also is defending itself against a federal class-action suit in New York and similar cases in state courts in New York and Florida.

Stein, Fairfield’s lawyer, said the firm wants “everybody to be treated equally.’’

Beth Healy can be reached at bhealy@globe.com.