Hedge fund manager Ezra Merkin has agreed to sell his art collection for $310m, with the net proceeds to go toward possible payment to his investors who lost money in the Bernard Madoff investment fraud.

The sale was announced in court papers on Tuesday by New York Attorney General Andrew Cuomo, who accused Mr. Merkin in an April lawsuit of improperly steering $2.4bn in customers' money to Mr. Madoff without their knowledge.

Mr. Merkin was not accused of knowing about the swindler's massive Ponzi scheme, but Mr. Cuomo contends Mr. Merkin misled clients about who was overseeing their investments. Mr. Merkin's art collection includes paintings by Mark Rothko and sculpture by Alberto Giacometti. The sale to an unidentified buyer will yield at least $191.9 million, after liens, taxes and fees, Mr. Cuomo's office said.

We believe it is only fair that Mr. Merkin liquidate his valuable art collection, which he purchased with the fees he earned from his investors, and keep the proceeds in escrow pending resolution of our lawsuit," Mr. Cuomo said.

Mr. Merkin's attorney, Andrew Levander, said the hedge fund operator and his wife had agreed to the sale and to place the proceeds in escrow while the litigation continues, "without prejudice to their rights."

He said Mr. Merkin continues to defend himself against the court action brought by Mr. Cuomo and others, believing that the lawsuits have no merit.

Mr. Cuomo contends that Mr. Merkin ignored glaring red flags about Mr. Madoff's business while reaping $470m in fees by doing business with him.

The lawsuit, brought in New York state court, accuses Mr. Merkin of civil fraud.