The firm continued to advise investors to invest in Madoff's business while ignoring mounting suspicion Madoff -- now serving a 150-year prison sentence -- was not running a legitimate investment business.
One email sent by an Ivy principal to an employee said, "Oh, Madoff, you omitted one possibility -- he's a fraud!," the Los Angeles Times reported Tuesday.
"Ivy Asset Management violated its fundamental responsibility as an investment adviser by putting its own pecuniary interests ahead of the interest of its clients," said New York State Attorney General Eric Schneiderman.
"An investment adviser should apprise its clients of risks, but Ivy deliberately concealed negative facts it uncovered in its due diligence of Madoff in order to keep on earning millions of dollars in fees. As a result, its clients suffered massive and avoidable losses," Schneiderman said.