Prosecutors said the fraud was discovered after several investors tried to redeem money from his Westgate Capital fund after hearing about the more than $50 billion fraud blamed on Madoff.
In the second case, Paul Greenwood, 61, of North Salem, and Stephen Walsh, 64, of Sands Point, were charged with conspiracy, securities fraud and wire fraud.
Greenwood and Walsh ran Greenwich, Conn.-based WG Trading Company LP and Westridge Capital Management Inc., based in Santa Barbara, Calif. They also had offices in Manhattan and Jersey City, N.J.
According to the criminal complaint, their clients included "charitable and university foundations, retirement and pension plans and other institutions."
Investors were told the money would be invested using a conservative strategy called "enhanced stock indexing" that would outperform the S&P 500.
The probe began with an audit earlier this month by the National Futures Association, a Chicago-based regulatory agency for the U.S.
futures industry.
The group suspended the pairs' membership after they refused to answer questions about their books.
Records showed that of the $812 million in assets held by their operation, $794 million were in promissory notes saying Greenwood and Walsh owned their own fund money.
Prosecutors allege that since the summer of 2007, $1.3 million in illegal wire transfers were made to bank accounts held by Greenwood and Walsh's wife.
An unidentified WG Trading employee told the FBI the money was used for "the purchase of expensive collectible items by Greenwood, the purchase of horses by Greenwood, transfer of cash to Walsh's then-wife and ... the purchase of an apartment for Walsh's ex-wife pursuant to a divorce settlement." The Securities and Exchange Commission said the collectibles included expensive Steiff teddy bears.
Last week, the University of Pittsburgh and Carnegie Mellon University sued Westridge, Greenwood and Walsh, seeking the immediate return of more than $114 million they invested.
David Rosenfeld, associate director in the SEC's regional office in New York, said the case ranks among the largest investment frauds.
"This was truly an egregious fraud of immense proportions," Rosenfeld told The Associated Press.
Greenwood was elected last year as a supervisor in North Salem, where press accounts say he raises horses on a 300-acre farm. He once owned Old Salem Farm, a 54-acre riding school and horse farm bought from Paul Newman and Joanne Woodward.
He and Walsh also were once partial owners of the New York Islanders hockey team.
Bail was set at $7 million each, and they were ordered to post $1 million in cash or property that was not derived from the alleged fraud. Richard D. Weinberg, a lawyer for Walsh, and Robert J. Jossen, a lawyer for Greenwood, declined to comment.
At Nicholson's court appearance, Assistant U.S. Attorney Joshua Klein asked a judge to hold him without bail, saying there were more than 350 victims and as much as $900 million missing.
"And we have no idea where any of that is," he said.
Defense attorney Ira Sorkin, who also represents Madoff, asked that Nicholson receive house arrest, confined to his Saddle River, N.J., home and monitored with an ankle bracelet - conditions similar to Madoff's bail.
Bail was set at $10 million by Magistrate Judge Douglas F.
Eaton, who noted the size of the fraud and said home confinement and electronic monitoring would be required.
The arrests were just the latest in a series of high-profile, white-collar crime cases to rock Wall Street.
Madoff is under house arrest after authorities said he confessed to his sons in early December that he ran a $50 billion Ponzi scheme.
Other cases include that of Florida hedge fund Arthur Nadel, accused of bilking investors of up to $350 million, and Mark Dreier, a prominent lawyer charged with stealing $400 million in a hedge fund scam. Dreier has pleaded not guilty.
The Nadel case came after his partners, spooked by the Madoff case, asked for an independent audit of Nadel's business.
In a third case Wednesday, trader Mark Bloom, who had once worked with Greenwood and Walsh, was also charged with securities fraud. He was accused of misappropriating millions of dollars including funds to buy a luxury Manhattan apartment.
Bail was set at $3 million for Bloom, who must post $1 million in cash or assets.
His lawyer, Judd Burstein, had no comment.
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