Austin Capital Management, a fund of hedge funds shop that had some 7.5% of its assets invested with Ponzi scheme mastermind Bernard Madoff, is going on the defensive against a hedge fund filed on behalf of two New Mexico state funds.

The firm, which is based in the Texas capital, said last week that it would “vigorously” defend itself against the lawsuit, filed by the National Education Association of New Mexico, a teachers union, over $25 million in losses suffered by state’s Educational Retirement Board and State Investment Council. The union lawsuit alleges that Austin ignored several red flags because of its longstanding relationship with Madoff, who was sentenced to 150 years in prison for running a $65 billion Ponzi scheme yesterday.

“Austin Capital is aware that it and certain of its employees and affiliates were named as defendants in a litigation filed and recently unsealed in New Mexico,” Sally Martin, a spokeswoman for the firm, told the Austin American-Statesman. “We believe the allegations made are unfounded, and we intend to vigorously defend Austin and its employees and affiliates.”

Austin Capital’s parent, Ohio-based KeyCorp, last month announced it was shutting down the fund of funds shop.

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