Attorney General Eric Schneiderman said Sunday that the clients will be paid over three years and New York state will get $5 million to cover the cost of the settlement.
Merkin had managed four funds with hundreds of investors. Schneiderman says many are New Yorkers and charitable organizations. None have been identified.
Madoff was once the Nasdaq chairman who used his reputation to dupe sophisticated investors, regulators and Wall Street banks. Merkin invested more than $2 billion with Madoff.
A Schneiderman spokesman says he can't speculate on the effect of the settlement on other investors who lost millions.