UBS to face pay-out calls over Madoff ties
By Brooke Masters in London and Peggy Hollinger in Paris
Published: January 15 2009 11:31 | Last updated: January 15 2009 23:39
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UBS could face new pay-out claims after a Luxembourg judge on Thursday ordered the Swiss bank to repay €30m ($39m) to a French financial group that had invested in funds linked with Bernard Madoff, the US financier charged with running a $50bn fraud scheme.
In what Luxembourg lawyers said was an unusually tough ruling, the court also ordered UBS to repay Oddo Asset Management by Friday or face an extra €3m for every day’s delay.
Oddo won its case on the grounds that its investment in the Luxalpha fund set up by UBS had been sold on November 17 – roughly a month before authorities arrested Mr Madoff. But the Swiss bank, custodian for the fund, did not release the proceeds to Oddo.
According to two people with access to court documents, roughly 15 other investors could potentially fall into the same category.
UBS confirmed the decision in a written statement, adding “The Luxalpha fund will carry out the ruling.” It declined to comment further.
Oddo said it launched the legal action after the arrest of Mr Madoff on December 12, after asking UBS repeatedly why the funds had not yet been paid.
The bank continued to refuse to pay after January 6, when Luxalpha gave the Luxembourg arm of UBS written permission to repay all investors who had requested redemptions by November 17, according to the ruling.
The judge wrote that UBS’s refusal to pay was “manifestly unjustified” and dismissed the argument that the funds were affected by a US court order to freeze all assets relating to Madoff vehicles.
Oddo said Thursday its decision to sell had come from a review of its investment portfolios launched in mid-2008 following the arrival of Thierry Deheuvels as head of investment.
The ruling does not affect the vast majority of investors in Madoff-related funds, because they did not put in sell orders before the arrest.
One blue-chip French fund manager told the Financial Times that it was working with investors accounting for some $350m in Luxalpha investments to tackle UBS over its role as a custodian bank.
The French fund manager sought to recover its investment after Mr Madoff’s fraud was revealed. “We don’t have the same rights as Oddo,” said one senior executive.
Luxalpha shareholders could call an extraordinary meeting of the fund to force out the board, which was almost entirely made up of UBS executives, he said.
Meanwhile, a 66-year-old Parisian pensioner on Thursday filed the first criminal lawsuit in France over €540,000 invested in Luxalpha, alleging breach of trust and fraud against an unnamed party. The allegations focus on the duties of the custodian bank, UBS.
UBS is already facing lawsuits in New York and Luxembourg. HBSC, the other main European custodian for Madoff “feeder” funds has been sued in New York and, as of Wednesday, Ireland.
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