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November 26, 2010updated 04 Apr 2017 3:52pm

UBS faces $2bn suit for Madoff involvement

UBS is being sued for $2bn for directing and overlooking client investments in feeder funds linked to convicted fraudster Bernard Madoffs investment advisory unit, Bernard L Irving Picard, acting as trustee for Madoff investors, is suing UBS in the US for its involvement with feeder fund Luxalpha, part of Madoffs Ponzi scheme.

By PBI Editorial

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.

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

Picard, 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.

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