Jan. 29 (Bloomberg) -- A former employee of accused Ponzi scheme mastermind Bernard Madoff’s investment firm asked a judge to keep him from being stuck with a bill for more than $58,000 for a 2009 Mercedes S500-4 once used by his ex-boss.

Craig Kugel, who worked at Bernard L. Madoff Investment Securities LLC, signed a lease for the car on Oct. 31 at Rallye Motors in Roslyn, New York. In court papers filed yesterday in U.S. Bankruptcy Court in Manhattan, attorneys for Kugel said he did so because Madoff refused to provide the necessary financial information about his firm to the car dealership.

Madoff’s brother Peter, the firm’s chief compliance officer, allegedly “designated Craig Kugel, in writing, as a director” and told him to sign the lease on the firm’s behalf, according to the filing. Kugel worked in the human resources department and wasn’t a director of the firm.

“He was the one that got the short end of the stick,” Kugel’s attorney William Gogel said today. “He was victimized by what Peter Madoff made him do.”

Peter Madoff allegedly told Kugel to sign the lease because “the old leased car had to be returned and the new car was immediately needed by Bernard Madoff,” according to the papers, filed as part of the Securities Investor Protection Corp. liquidation of the New York-based brokerage.

Rallye required Kugel to personally guarantee the lease as well as sign on behalf of the firm while Kugel “never intended to be personal guarantor of the lease,” according to the court filing, which seeks to eliminate Kugel’s lease liability.

Salesman, Lawyers

Bob Bianchi, who was named in the court papers as the Rallye salesman involved in the lease transaction, and John Wing, Peter Madoff’s attorney, didn’t return calls yesterday seeking comment. Bernard Madoff’s attorney, Ira Sorkin, declined to comment.

Bernard Madoff’s driver delivered the car, and Kugel has never used it, according to the filing.

Madoff, 70, was charged by federal prosecutors with securities fraud after allegedly confessing to investigators that he directed a $50 billion Ponzi scheme, which paid early investors with money from later participants. Madoff hasn’t formally responded to the charge. He faces as long as 20 years in prison if convicted.

On Jan. 15, Kugel got a notice of default for the lease, which still has remaining payments of $58,212. Mercedes-Benz Financial has said it will sell the car, according to the filing.

Irving Picard, the trustee unwinding Madoff’s brokerage, asked a judge to let him cancel leases on six vehicles rented by the firm, including the Mercedes.

Lost Opportunities

“The actions of the trustee in voluntarily surrendering the vehicle without Craig Kugel’s knowledge or consent has deprived Craig Kugel of the opportunity of keeping and paying for the vehicle or attempting to renegotiate the lease price” or sell the car on his own, according to the filing.

Picard asked for a hearing on Feb. 4 and seeks to reject the leases going back to Dec. 11, when the U.S. Securities and Exchange Commission sued Madoff and his brokerage. Madoff was arrested that day on a fraud charge.

Picard, 67, is tackling the most complex fraud in the four- decade history of SIPC, according to Stephen Harbeck, the corporation’s president, and may take more than five years to pay back all customers of Madoff’s brokerage business.

SIPC was created in 1970 to cover losses when brokerages fail. Judges gave Picard the power to seize assets and records, demand documents, summon witnesses and enter Madoff’s residences around the world.

The case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Christopher Scinta in New York at cscinta@bloomberg.net.

Last Updated: January 29, 2009 11:13 EST