Massachusetts' top securities regulator reached an $8 million settlement on Tuesday with Fairfield Greenwich Group for having invested the bulk of its clients money with swindler Bernard Madoff.

Under the agreement, Fairfield Greenwich will make full restitution to Massachusetts residents who invested in its Sentry Funds.

The once prominent hedge fund firm, which put about $7.2 billion, or 95 percent, of its Sentry Funds assets with the man who engineered the biggest-ever Ponzi scheme, will also pay interest to the investors and pay the state a $500,000 fine.

William Galvin, Massachusetts' Secretary of State, announced the settlement less than 24 hours before Fairfield Greenwich executives were expected to testify at public hearings in Boston this week.

This Fairfield settlement, which provides restitution and interest for Massachusetts investors, represents the first investor relief ordered by a regulator in the Madoff scandal and I hope that it will become a template for other resolutions, Galvin said in a telephone interview.

Fairfield Greenwich did not admit or deny allegations it engaged in unethical behavior and dishonest practices.

Fairfield Greenwich's goal was to resolve the Massachusetts action 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, spokesman Thomas Mulligan said.

He added Fairfield Greenwich was in discussions to settle those other claims as well.

Their acknowledgment by making this settlement is a step in the right direction for investors who lost money to Bernie Madoff, said Brenda Sharton, a partner at law firm Goodwin Procter.

Less than a month ago, Galvin, who has probed Madoff's $65 billion fraud since December, rejected Fairfield's offer to settle the case for $6 million.

At that time, Galvin's office had identified roughly a dozen state residents who had lost money with Madoff through Fairfield and the regulator said he expected more victims to come forward.

Galvin sued Fairfield Greenwich, one of Madoff's most prominent feeder funds, on April 1. He charged the firm misled investors about reviewing exactly how the former nonexecutive chairman of the Nasdaq stock market managed to generate strong and steady returns for decades.

Fairfield's top executives, who earned roughly $300 million in fees from clients invested with Madoff in the last three years, neglected to make meaningful checks into whether the man who orchestrated Wall Street's biggest-ever investment fraud, was actually making any trades, Galvin charged.

Madoff, 71, is serving a 150-year prison sentence after pleading guilty to engineering the $65 billion fraud for over two decades.

(Reporting by Svea Herbst-Bayliss; editing by Maureen Bavdek and Andre Grenon)