* Auction for market-making operation set for April 27

* Bankruptcy court must approve winning bid (Adds details from statement, background, byline)

By Martha Graybow

NEW YORK, April 22 (Reuters) - The trustee liquidating Bernard Madoff's business said on Wednesday that he had received three more bids for its market-making unit, as he prepares to sell it and distribute the proceeds to the swindler's defrauded clients.

The trustee, Irving Picard, said he expects to proceed with a court-approved auction on April 27 to sell the unit, an arm of Bernard L. Madoff Investment Securities LLC.

Madoff, who pleaded guilty in March to running a long-standing investment fraud, is in jail and awaiting sentencing in June. Prosecutors say the fraud involved as much as $65 billion in funds that clients thought they had in their Madoff accounts, but that little money is left.

Last month, the trustee announced a potential deal with Boston financial firm Castor Pollux Securities LLC to buy the trading operation for $15 million -- a fraction of what Madoff estimated it was worth a few months ago -- as long as no higher bids emerged.

Madoff's firm had a trading business and a money management business. The fraud took place in the investment unit but the entire operation has been under investigation by authorities.

Picard has said previously that one difficulty in selling the market-making unit was that it has not been operational since Madoff's December arrest and needed significant capital to restart.