NEW YORK (Bloomberg) — The trustee liquidating Bernard Madoff's defunct money management firm sued three Fairfield Greenwich Group hedge funds, seeking the return of $3.54 billion withdrawn before Madoff's massive fraud unravelled.

The trustee, Irving Picard, filed the so-called clawback lawsuit in Manhattan federal court on Monday, seeking damages that will be used to repay victims of a $65 billion Ponzi scheme at Madoff's New York-based money-management firm.

Since 1995, the Fairfield funds invested about $4.5 billion with Bernard L. Madoff Investment Securities LLC, or BLMIS, through 242 wire transfers, Picard said in the complaint. The funds are Fairfield Sentry Ltd., Greenwich Sentry LP and Greenwich Sentry Partners LP. Fairfield Greenwich administers some of its funds through its Bermuda office.

Beginning in 1996, "the defendant funds received from BLMIS unrealistically high and consistent annual returns", Picard said in the complaint. "Defendants knew or should have known that BLMIS was engaged in fraud based on these facts."

The hedge funds withdrew $3.2 billion from Madoff accounts in the six-year period before Madoff's December 11 arrest, including $1.2 billion withdrawn in the final three months of the fraud, according to the complaint. Picard said that amount is recoverable under US bankruptcy law.

Fairfield Greenwich, one of the hardest-hit firms in the Madoff fraud with $7.5 billion invested, has been sued by several investors over its Madoff-related losses.

Seth Faison, a spokesman for New York-based Fairfield Greenwich said the funds lost far more from the Madoff fraud than they ever redeemed. "There is no merit to this lawsuit, and it will be defended vigorously," Faison said in an e-mail.

The complaint adds to several clawback suits seeking a total of $10.1 billion from investors that Picard claims should have known of the fraud. Picard already has recovered as much as $1 billion in Madoff-related assets. He's also seeking about $735 million from Madoff customers outside of court.

At least 8,848 claims for Madoff losses have been filed, tied to 3,565 customer accounts, Picard said last week. The trustee also said he expects to approve at least $100 million of investor claims by May 25, and win "significant" settlements of clawback-suits in the next few weeks.

Madoff, 71, pleaded guilty March 12 to running the biggest Ponzi scheme in US history by paying early investors with money from newer ones. He faces as much as 150 years in prison when he is sentenced June 29 in Manhattan federal court. Madoff is jailed in a federal prison in Manhattan.

A total of about $12 billion was withdrawn from Madoff's firm in 2008, including about $6 billion in the 90 days before the Madoff bankruptcy, said David Sheehan, a lawyer representing Picard. The trustee was appointed by the Securities Investor Protection Corp.

Last week, Picard sued lawyer and philanthropist Jeffry Picower and hedge fund Harley International (Cayman) Ltd. seeking the return of more than $7 billion in Madoff-related profit. Picower was sued individually and as trustee for the Florida-based Picower Foundation.

Harley International, a hedge fund run by Cayman Island-based Euro-Dutch Management Ltd., withdrew $425 million from what it "knew or should have known was non-existent principal", according to the complaint in that case.

This month, the trustee sued New York financier J. Ezra Merkin for $557.8 million. Picard claims Merkin withdrew the "non-existent principal" through his Gabriel Capital fund and two others. Merkin, through his lawyer, has said Picard's theory of liability "has no legal basis".

On May 1, Picard sued philanthropist Stanley Chais, accusing the Los Angeles investment adviser of accepting "implausibly high" returns on his Madoff accounts when he should have known the scheme was a fraud.

Picard last month sued Kingate Management Ltd. for the return of $255 million transferred to the firm's funds in the months before Madoff's collapse. That lawsuit also names Bank of Bermuda Ltd., a unit of HSBC Holdings Plc, as a defendant.

Picard in April sued Banque Jacob Safra (Gibraltar) Ltd. and British Virgin Islands-based Vizcaya Partners Ltd. seeking to recover $150 million transferred from Madoff's business last year. That suit was the first one aimed at getting back assets withdrawn by a Madoff client.