A Virgin Islands-registered “feeder fund” that funneled clients’ money into Bernie Madoff’s $65 billion Ponzi scheme is suing an Irish subsidiary of HSBC bank for $539 million, alleging that the bank breached an agreement by not carrying out adequate due diligence on Mr. Madoff.

The fund, Defender Ltd., filed the suit in an Irish court Monday against the Ireland-registered HSBC Institutional Trust Services Incorporated.

Defender, which acted as a conduit for investors seeking to do business with the United States-registered Bernie L. Madoff Investment Securities, is arguing that HITSI broke an agreement relating to the handling of funds in its custody, according to Ireland’s Independent newspaper.

That agreement required HITSI’s parent bank, HSBC, to relay bank representatives’ concerns about Mr. Madoff’s brokerage firm to the fund, the newspaper reported.

In addition to other demands, the fund is asking the court for an order for HITSI to return more than $539 million that was reportedly in the firm’s custody just before the Ponzi scheme was uncovered.

However, Irving Picard, the US trustee liquidating BLMIS, has previously alleged that Defender and affiliate entities that did business in the name of the Reliance Group also ignored warning signs that Mr. Madoff was running a Ponzi scheme.

In a series of legal actions levied against multiple banks and financial services firms in 2010 — a group which included Defender, its affiliates and group founder Tim Brockmann — Mr. Picard sought the recovery of $555 million.

“The Reliance Group Defendants were repeatedly willing to cut corners on due diligence and consciously disregarded warnings that Madoff was engaging in fraudulent activity,” the trustee stated in a 2010 press release.

When news broke on Dec. 11, 2008 that Mr. Madoff had been running history’s largest Ponzi scheme — a con in which new investors’ money is used to pay seemingly lucrative returns to existing investors — the resulting liquidation of BLMIS also forced liquidations at a variety of feeder funds, including several registered in the VI.

{fcomment}