UPDATE 1-Deal closed for ex-Madoff trading unit

* $25.5 mln sale closed for ex-Madoff trading unit

* New broker-dealer will take over trading platform

* Operate out of same building as Madoff firm (Recasts with details and quotes of announcement)

By Grant McCool

NEW YORK, June 18 (Reuters) - The sale of Bernard Madoff's former securities-trading unit for $25.5 million has been finalized, the new broker-dealer taking it over said on Thursday, as officials continue to investigate the confessed swindler's massive global fraud.

New York-based Surge Trading Inc said in a statement it will operate on the same floor of the so-called Lipstick Building in Manhattan where the brokerage arm of Bernard L. Madoff Investment Securities LLC (BLMIS) ran its trading platform.

Surge was formerly known as Castor Pollux Securities Inc, the Boston firm that won the auction in April for the Madoff unit, which sold for a fraction of its former worth of about $1 billion. Officials said the unit was legitimate, unlike the investment arm at the center of the $65 billion fraud.

"Surge Trading has also hired key personnel from the former BLMIS who supported that firm's successful market-making and proprietary trading businesses," the statement said.

Madoff, 71, pleaded guilty in March to orchestrating the fraudulent scheme over 20 years through the investment unit of the firm. Madoff, a former nonexecutive chairman of the Nasdaq stock market, was immediately jailed and is expected to spend the rest of his life in prison after sentencing on June 29.

The start of market-making operations by the new firm is subject to approval by the Financial Industry Regulatory Authority, or FINRA.

Executives of the former Madoff trading unit, which matched buyers and sellers of stocks, included Madoff's brother Peter and two of the swindler's sons, Mark and Andrew. They have denied knowledge of the fraud and have not been charged with any crime, although their assets have been frozen.

Stephen Sussman, a managing member of Regulatory Compliance LLC, a firm that worked on the deal's details, said it involved hundreds of hours examining records and filing documents with authorities, but he never met the Madoffs.

Sussman said by telephone he was aware that, "everything is being viewed under a microscope, that this is going to be looked at most closely, reviewed constantly, even though it is the legitimate branch."

Surge Trading's CEO is Frank Petrilli, former CEO of TD Waterhouse, the statement said. Darin Oliver, former CEO of Castor Pollux, will become President, while former Fidelity Brokerage Services LLC President Robert Mazzarella will serve as the nonexecutive Chairman.

The sale's proceeds will eventually go to Madoff's defrauded customers, according to the trustee winding down the brokerage. A lawyer for court-appointed trustee Irving Picard declined to comment on the deal, which was closed late on Wednesday.

Under the deal announced in April, Castor Pollux would pay $1 million at closing and up to $24.5 million in deferred compensation through December 2013.

The case is Securities Investor Protection Corp v Bernard L. Madoff Investment Securities 08-01789 in U.S. Bankruptcy Court for the Southern District of New York (Manhattan) (Reporting by Grant McCool; editing by Lisa Von Ahn and Andre Grenon)