Fund to pay $8m to Madoff investors

Galvin, the state’s top securities regulator, had sued the fund, saying it failed to perform “rigorous’’ due diligence of Madoff’s operation while telling its Massachusetts investors it had.

Under the agreement, Fairfield Greenwich neither admitted nor denied the state’s allegations. It will, however, repay nearly a dozen investors the original sum they placed with the firm, plus 6 percent annual interest. It will also pay the state a $500,000 fine. The deal was announced one day before hearings on Galvin’s action were scheduled to begin in Boston, at which Fairfield Greenwich executives were to testify.

Galvin said he hoped the agreement “will become a template for other resolutions’’ in the Madoff scandal.

The deal is the first to be struck by a regulator in the $65 billion Madoff swindle and could be met by protests from thousands of Fairfield Greenwich customers outside of Massachusetts who are waiting to hear from other officials whether they will receive any money back in the ordeal. Fairfield Greenwich lost $7.2 billion with Madoff, more than any single entity.

In a statement, Fairfield Greenwich said it settled with Galvin “in order to avoid drawn-out hearings and significant legal bills, so that the firm could focus its time and resources on other legal claims involving many more investors.’’ The firm said it is “already in discussions that seek to settle these other claims.’’

About 23 Fairfield Greenwich executives and customers had been slated to testify at the hearings that were to begin today in the fraud case Galvin’s office filed against the firm in April. By settling, the firm avoids a potentially embarrassing public display of what it did and didn’t know about Madoff. In its complaint against the firm, the state had alleged that, despite 18 years of doing business with the now-convicted Ponzi artist, Fairfield Greenwich didn’t have certain basic information on Madoff, such as who handled the firm’s trades and which banks were counterparties on his supposed options-trading strategy.

Fairfield executives earned more than $300 million in fees referring investors to Madoff in the last three years, the state alleged.

In the settlement, the state downgraded its original fraud charge to one of failing to conduct due diligence. The state ordered Fairfield to cease and desist from further violations of state securities law.

Irving Picard, the bankruptcy trustee who is hunting for money to return to Madoff victims, has also sued Fairfield in federal court in Manhattan, seeking $3.2 billion of customer funds. Picard declined to comment on Galvin’s settlement. When pressed as to whether Fairfield legally could make payments to Massachusetts victims ahead of those covered in the trustee’s lawsuit, Picard said only, “I have no idea what a court will decide.’’

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