Madoff feeder funds are looking vulnerable. For the second time in two months, a federal judge has green-lighted a securities suit against an investment manager that handed money over to Bernard Madoff. On Tuesday, Manhattan federal district court Judge Leonard Sand declined to dismiss securities law claims against the Beacon Associates investment fund and Ivy Asset Management, now owned by Bank of New York Mellon Corp. He also allowed ERISA claims brought by union fund plaintiffs in the case to move forward. The judge did dismiss the plaintiffs’ New York state Martin Act claims and ERISA claims by plaintiffs that aren’t union funds.

From 1995 to 2008, Beacon invested roughly 71 percent of its assets with Madoff, for a total net investment of $138 million, taking into account withdrawals. The reported value of this investment was $358 million before the fraud was exposed. Ivy served as an investment adviser for Beacon. In their complaint, found here, the plaintiffs argue that Ivy had identified Madoff as one of its top risks, but concealed this fact from investors.

In August, Manhattan federal district court Judge Victor Marrero ruled that a purported class of investors who lost billions in funds managed by Fairfield Greenwich can move forward with claims against that Madoff feeder.

Sand’s ruling on Tuesday isn’t quite as long as Marrero’s 198-page opus, but at 82 pages, it’s still a lot to digest. In reaching his decision, Sand wrote that the plaintiffs persuasively alleged that Ivy had “grave doubts” that Madoff might be a fraud, and that Ivy steered other clients away from Madoff for this reason.

In a separate ruling, Sand named Lowey Dannenberg Cohen & Hart of White Plains, N.Y., lead counsel for the plaintiffs.

The U.S. Secretary of Labor also has taken an interest in this case, filing this amicus brief in support of the argument that Ivy was an ERISA fiduciary.

Plaintiffs lawyer Barbara Hart of Lowey Dannenberg pointed out that even though the plaintiffs have been unable to take any discovery yet, they have benefited from evidence unearthed by New York Attorney General Andrew Cuomo and included in his state court complaint against Ivy and two of its executives. This evidence, which includes numerous e-mails, suggests that various Ivy officials suspected that Madoff might be running a Ponzi scheme. Sand cited this evidence throughout his ruling.

Bank of New York is represented by Lewis Liman of Cleary, Gottlieb, Steen & Hamilton, who referred us to the bank. A spokesman for Bank of New York declined to comment.

This article first appeared on The Am Law Litigation Daily blog on