Jan. 2 (Bloomberg) -- The Austrian financial regulator assumed control of Bank Medici AG after the Vienna-based private bank said it had $2.1 billion invested in funds managed by Bernard Madoff. Chief Executive Officer Peter Scheithauer resigned.

The Financial Markets Authority is assigning state supervisor Gerhard Altenberger to the bank to “safeguard the interests of creditors and the company’s assets,” the regulator said in a statement today. The watchdog has the power under Austrian law to make such an appointment for up to 18 months “to avert any threat to the financial interests of the clients of an investment firm.”

Bank Medici said on Dec. 16 that its Herald USA Segregated Portfolio One and Herald (Lux) US Absolute Return funds invested all of their money with Madoff. The bank also took over managing a third fund, the Dublin-based Thema Fund, at the end of 2006, according to a regulatory filing. Medici still manages Thema, two people with direct knowledge of the matter said. They declined to be identified as they’re not authorized to give the information.

The Thema Fund had $1.1 billion of assets as of Nov. 28, according to data compiled by Bloomberg. It suspended redemptions on Dec. 14 after Madoff’s assets were frozen by court order. Madoff was arrested on Dec. 11 and charged with running what he told his sons was a Ponzi scheme. Clients face losses that Madoff said were as high as $50 billion, according to the U.S. Securities and Exchange Commission.

UniCredit Stake

Bank Medici, which had net income of 541,000 euros ($753,000) in 2007, is 75 percent owned by Chairman Sonja Kohn, 60, who founded the bank in 1994. Milan-based UniCredit SpA holds the rest. The company had $4 billion of assets under management as of Sept. 29.

Bank Medici said in a statement earlier today that it wasn’t necessary for the Austrian regulator to appoint a supervisor because its clients’ assets “aren’t in danger.” The bank is “sound” and will comply with any action taken by the FMA, it added.

Altenberger will have the power to reject any business that Bank Medici does that would increase the risk of it being unable to pay back lenders.

Scheithauer and fellow board member Werner Tripolt resigned, according to the regulator’s statement.

To contact the reporter on this story: Zoe Schneeweiss in Vienna at zschneeweiss@bloomberg.net