The trustee liquidating Bernard Madoff's fraudulent fund management scheme has demanded more than $1 billion from Cayman Island-based hedge fund Harley International, according to media reports.

It is alleged that the firm, which put in over $2 billion, should have noticed warning signs.

Mr Madoff pled guilty in March to fraud and is expected to be sentenced on 16 June. His crime has focused attention on the need for greater due diligence checks on investments and greater use of entities such as independent fund administrators.