UBS is being sued for $2bn for directing and
overlooking client investments in feeder funds linked to convicted
fraudster Bernard Madoff’s investment advisory unit, Bernard L.
Madoff Investment Securities (BLMIS).
Irving Picard, acting as trustee for Madoff
investors, is suing UBS in the US for its involvement with feeder
fund Luxalpha, part of Madoff’s Ponzi scheme.
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UBS subsidiaries in Luxembourg served as both
custodian and administrator for Luxalpha.
The suit comes as UBS battles to restore its
battered reputation in the wake of huge client asset losses
since 2007 and a recently concluded legal wrangle with US
regulators over the tax details of more than 4,000 US clients.
UBS “armed with knowledge”
of Madoff fraud
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By GlobalDataPicard, a partner with Baker & Hostetler
in New York, alleged in his 107-page filing that “Madoff did not
act alone in perpetrating the largest financial fraud in
history”.
Picard alleged that UBS subsidiaries “were
armed with the knowledge that BLMIS was a fraud [but] nevertheless
chose to enable the Madoff’s fraud for their own gain.”
He claimed that the Swiss bank’s subsidiaries
intended to “lull the outside world” with its sponsorship of
Luxalpha, a Luxembourg-based investment fund, and the Zurich-based
bank’s subsidiaries allowed investment in the fund to continue for
their profit.
Bank subsidiaries paid $80
million
The complaint states that the UBS defendants
“had agreed to look the other way” and were paid at least $80
million for its involvement in the funds.
Picard said that Luxalpha and Groupement
Financier withdrew $796 million in the ninety days before BLMIS
filed for bankruptcy and about $1.12bn in the preceding six
years.
UBS rejected Picard’s claims, arguing that the
clients [of the Luxalpha fund] were represented by sophisticated
financial institutions being fully aware of the nature of the
investments.
UBS counter-statement
A statement filed by UBS read: “These
investors, their advisors and Luxembourg’s regulator CSSF were
informed about the fact that the sole purpose of Luxalpha was to
enable the funds to be invested with Madoff.”
The statement said the fund documentation made
it very clear that UBS (Luxembourg) SA was not expected to be
responsible for the safekeeping of the assets. The fund
documentation contained an explicit waiver to that effect.
“UBS does not have responsibility to these
shareholders for the unfortunate results of the Madoff scandal,” it
added.
The bank added the allegations of wrongdoing were completely
unfounded and without merit and that it would take action to prove
that the allegations were false.
