The trustee overseeing the liquidation of Bernard Madoff's assets has filed a $587 million lawsuit in New York against an offshore hedge fund that invested with Mr Madoff, who was recently jailed for his $65 billion Ponzi fraud, according to Associated Press.

Trustee Irving Picard says the Herald Fund should have known its earnings were the product of Mr Madoff's fraud, the news agency said. In papers filed in bankruptcy court in Manhattan, Picard says the fund should give back the money to burned investors, it said.

A lawyer for the hedge fund, based in the Cayman Islands, could not be reached for comment, the news service said.

HSBC bank, which withdrew the money for the hedge fund, was also named in the lawsuit. It has denied any wrongdoing.

The 71-year-old Mr Madoff was sentenced to 150 years in prison late last month after admitting to the massive fraud. His crimes have hit a range of individuals and financial institutions, including private banks, wealth managers and asset management firms. The fraud has prompted calls for more rigorous due diligence scrutiny of investments.