NEW YORK (CNN/Money) - Federal prosecutors said Thursday they charged Bayou Management LLC, the hedge fund at the center of a multimillion-dollar missing-funds case, with defrauding investors and sought $101 million in civil forfeitures against the firm.

The U.S. Attorney's Office for the Southern District of New York said Bayou "overstated gains, understated losses and reported gains where there were losses," the prosecutors said in a press release.

A phony accounting firm was created and held out as an independent certified public accounting firm that purported to audit and certify Bayou's false financial statements. The accounting firm was "a sham and conducted no audits, independent or otherwise," the U.S. Attorney's Office said.

The Stamford, Conn.-based hedge fund firm has been under investigation for failing to account for some $440 million that it listed as having under management.

State and federal officials began probing Bayou after reports that investors were unable to get their money out of its two funds.

Federal prosecutors said they are seeking the $101 million that was seized by the Arizona Attorney General on May 19, two months before it emerged that Bayou was being investigated by state and federal law enforcement officials, according to Arizona AG spokeswoman Andrea Esquer.

The Arizona AG had petitioned the Arizona Superior Court to seize the money on "probable cause" that it was being used in a fraud based on its investigations.

The U.S. Attorney's Office said it will not take action to seize the funds until the Arizona court relinquishes jurisdiction over them.

----------------------------------

For the full background on the Bayou story, click here.