NEW YORK - The trustee overseeing the liquidation of Bernard Madoff's assets has sued a hedge fund based in the Cayman Islands, claiming it should return $587 million it earned with Madoff to investors wiped out by the disgraced financier's colossal fraud.
The complaint filed Tuesday in Manhattan bankruptcy court against the Herald Fund also names HSBC Bank as a defendant. It alleges the London-based bank withdrew the money from Bernard L. Madoff Investment Securities for the fund within three months before the firm's liquidation began.
The fund "knew or should have known that (Madoff's business) was predicated on fraud" when it received double-digit returns during market downturns, the complaint said.
A phone number for an attorney for the fund in Luxembourg was not receiving messages late Tuesday. There was no immediate response to an email.
In a statement, HSBC said it "continues to believe that it has good defences to the claims and will vigorously defend itself against the actions that have been brought."
Madoff, 71, was sentenced late last month to 150 years in prison for orchestrating a multimbillion dollar Ponzi scheme that wiped out life savings and entire charities.
Thousands of investors with Madoff's once-respected advisory firm believed their securities accounts were worth tens of billions of dollars. But investigators say the totals on the clients' monthly account statements were fiction: In reality, Madoff never made investments, and instead used new investors' money to pay returns to existing ones.
After Madoff's arrest late year, trustee Irving Picard was appointed to try to recover funds -- sometimes by suing hedge funds and other large investors who came out ahead -- and divvy up those proceeds to victims. About $1.2 billion in assets have been recovered so far.
The search for Madoff's assets "has unearthed a labyrinth of interrelated international funds, institutions and entities of almost unparalleled complexity and breadth," Picard said in a report last week.
The report said the trustee has located assets and businesses "of interest" in 11 places: Great Britain, Ireland, France, Luxembourg, Switzerland, Spain, Gibraltar, Bermuda, the British Virgin Islands, the Cayman Islands, the Bahamas.
More than 15,400 claims against Madoff were filed by a July 2 deadline, the trustee said.
