Hedge-fund manager J. Ezra Merkin, who heavily invested nonprofits’ and other clients’ money with Bernard Madoff, will pay victims of the scam $405-million over three years under a civil settlement with New York State, The New York Times and Bloomberg report.

The pact was approved by a judge Friday, settling a suit filed in April 2009 by the New York attorney general’s office. Irving Picard, the Madoff bankruptcy trustee who has also sued Mr. Merkin to recover funds for victims, is expected to challenge the settlement in court.

Four funds managed by Mr. Merkin lost a combined $1.2-billion when Mr. Madoff’s Ponzi scheme collapsed in late 2008. Ten percent of his funds’ assets came from nonprofit groups, among them Bard College, the Harlem Children’s Zone, and Yeshiva University. Mr. Merkin was a trustee at Yeshiva, which lost $110-million to the fraud.