Herald Fund lost $1bln, wants Madoff suit dismissed

* Fund says it made no false profits from Madoff

* Managed about $1.5 billion

By Grant McCool

NEW YORK, Oct 27 (Reuters) - Herald Fund of the Cayman Islands, which lost almost $1 billion to epic swindler Bernard Madoff, has asked a New York court to dismiss a "clawback" claim by the trustee hunting worldwide for Madoff-related assets, according to court documents.

Two weeks after Madoff was sentenced to 150 years imprisonment on June 29 after he admitted to running a decades-long multibillion dollar investment fraud, the trustee sued Herald Fund, HSBC Securities Services SA in Luxembourg, which was custodian of Herald Fund assets, and HSBC Bank Plc. [ID:nN14264746]

Trustee Irving Picard and his team of lawyers have filed numerous claims amounting to about $15 billion to try and recover money for thousands of defrauded investors in Bernard L. Madoff Investment Securities LLC (BLMIS).

"Yet the trustee has now overstepped his bounds," Herald said in its motion dated Oct. 26 to dismiss the July 14 complaint in U.S. Bankruptcy Court in New York. "Herald Fund, unlike other investors, received no return of false profits from BLMIS."

Scores of smaller investors have filed objections in the same court to the trustee's so-called "clawback" lawsuits over profits he maintains are other people's money. U.S. prosecutors estimate as much as $65 billion went through the Madoff firm over the years, but lawyers for the trustee have also estimated the number at about $36 billion.

A spokesman for Picard said in an email that the trustee will not comment on ongoing litigation. As of Oct. 16, the trustee has allowed 1,433 claims by defrauded investors totaling $4.22 billion, according to the web site wwww.madofftrustee.com.

Picard and Securities Investor Protection Corporation President Stephen Harbeck have scheduled a news conference for Wednesday on the Madoff proceedings.

WITHDRAWALS OF $500 MLN

The Herald Fund motion said about $1.5 billion was deposited in the account that HSBC Securities Services SA in Luxembourg opened for Herald Fund at the Madoff firm, but only $500 million was withdrawn.

"This Court should not condone the further victimization of Herald Fund by allowing the Trustee to claw back such transfers from, quite possibly, one of the most significant 'net losers' in Madoff's rampant Ponzi scheme," the motion said.

A Ponzi scheme is one in which early investors are paid with the money of new clients. Madoff's scheme collapsed in the declining economy late last year when redemptions overwhelmed his ability to keep paying.

In a separate Oct. 26 motion for dismissal, the HSBC defendants said they "at all times acted as mere conduits for payment transfers between BLMIS and Herald Fund and at no time had dominion or control over any of the funds that were so transferred."

Herald investment fund was distributed by Austria's Bank Medici, which has described itself one of the biggest victims of Madoff's fraud.

The case is Irving H. Picard, Trustee for the liquidation of BLMIS v Herald Fund SPC, HSBC Bank PLC and HSBC Securities Services (Luxembourg) S.A., U.S. Bankruptcy Court for the Southern District of New York, No. 09-01359 (Reporting by Grant McCool; Editing by Richard Chang)