(Bloomberg News) A judge dismissed part of a $198 million lawsuit against Bernard L. Madoff's family by the liquidator of the con man's firm, leaving Irving Picard free to pursue most of his claims.

U.S. Bankruptcy Judge Burton Lifland struck Picard's claims for some transfers of money out of the jailed Ponzi scheme operator's firm. Picard, who sued Madoff's brother, two sons and niece, is free to amend his suit, the judge said in a court filing today.

Picard's 2009 lawsuit against the brother, Peter Madoff, sons Andrew and Mark Madoff and niece Shana Madoff Swanson, all of whom held senior positions at the defunct money-management firm, claimed they spent more than $198 million of investors' money and treated the con man's investment firm as their "family piggy bank."

Instead of preventing Madoff's scheme, they stood by and profited from it, taking money out of the New York-based firm to finance their business ventures, pay credit card bills for restaurants, vacations and clothing, and buy cars, boats and multimillion-dollar vacation homes, he said.

'Derelict in Duties'

Peter Madoff was chief compliance officer at Bernard L. Madoff Investment Securities LLC. Madoff's sons, Andrew and Mark, were co-directors of trading at the investment firm, and Shana Madoff was compliance director, according to Picard.

Mark Madoff committed suicide in December.

"Mark and Andrew Madoff had no prior knowledge of Bernard Madoff's crimes and contacted the U.S. Department of Justice and the SEC immediately after their father told them he had defrauded his investment advisory clients," said Martin Flumenbaum, a lawyer for Andrew Madoff and Mark Madoff's estate. "Whether or not the trustee amends his complaint to reassert some or all of the claims that were dismissed today, we fully expect to prevail on the merits."

Charles Spada, who has been representing Peter Madoff, had no immediate comment on the ruling.

Mark Smith, a lawyer for Shana Madoff, didn't immediately respond to an e-mail seeking comment.

The family members' responsibilities "extended through trading operations, customer relationships, and legal and regulatory compliance, yet they were completely derelict in these duties and responsibilities," Picard has said.

The family tried to get the suit dismissed, saying their involvement with the firm was legitimate and they were let down by Madoff.

Refusing to dismiss the entire suit, Lifland said the family's failure to stop Madoff's fraud was "unsurprising given their close familial relationship with Madoff and proximity" to his firm. However, Picard's suit contains "some correctable pleading deficiencies" that need to be amended, he said.

The case is Picard v. Peter Madoff, 09-1503, U.S. Bankruptcy Court, Southern District of New York (Manhattan).