The trustee for Bernard Madoff on Monday sued funds run by Fairfield Greenwich Group, the confessed swindler's largest feeder fund, for $3.5 billion, claiming it should have been aware he was engaged in fraud.

Connecticut-based Fairfield Greenwich Group worked closely with Madoff and knew or should have known that he was engaged in fraud, according to documents that Madoff's trustee Picard filed in Manhattan bankruptcy court.

The trustee says Fairfield Greenwich continued to work with Madoff even though it knew his firm was the subject of a U.S. Securities and Exchange Commission investigation in 2005, and that Fairfield also ignored other warning signs.

The $3.5 billion figure represents money Fairfield Greenwich received from Madoff on behalf of clients.

U.S. prosecutors have broadened their criminal investigation of the case beyond the friends and family of Madoff to at least eight investors and associates, the Wall Street Journal reported on Monday.

The case is 08-01789 in U.S. Bankruptcy Court for the Southern District of New York (Manhattan).

(Reporting by Elinor Comlay; Editing by Richard Chang)