Receivers would take control of three hedge funds run by prominent money manager Ezra Merkin and linked to the Madoff fraud, under an agreement between New York's top legal officer and Merkin, lawyers said on Tuesday.

At a hearing in New York State Supreme Court, Justice Richard Lowe gave the office of New York Attorney General Andrew Cuomo and Merkin's lawyers until May 28 to finalize their agreement in principal.

Cuomo's office, which sued Merkin for civil fraud in April, proposes one receiver to handle Ariel Fund Ltd and Gabriel Capital LP and a second receiver to control Ascot Partners LP. Cuomo's lawsuit said Merkin secretly steered $2.4 billion to Madoff, who pleaded guilty March 12 to running an investment fraud of up to $65 billion.

We believe this resolution in principle will be in the public interest and serve the victims of the fraud, David Markowitz, an attorney for the NYAG told the court.

A lawyer for Merkin, Howard Schiffman, acknowledged the agreement in court.

(Reporting by Grant McCool, editing by Gerald E. McCormick)

New York