Jan. 8 (Bloomberg) -- Banque Safdie SA, the Geneva-based wealth manager that withdrew money invested with Bernard Madoff three years before his alleged Ponzi scheme unraveled, said the scandal will mean more hedge fund regulation.

“What Madoff has done is highlight the lack of regulation,” Safdie Chief Executive Officer Claude Le Ber said in an interview from Geneva this week. “There’s going to be a shake out. Even before Madoff, the hedge fund industry was seeing redemptions and wasn’t producing absolute returns.”

Safdie, with 6.5 billion Swiss francs ($5.9 billion) under management at the end of 2007, is the second Swiss bank after Credit Suisse Group AG to disclose withdrawals of money before Madoff, 70, allegedly confessed to swindling investors out of as much as $50 billion. Credit Suisse said clients that stayed with Madoff lost almost $1 billion, and Swiss private banks including Union Bancaire Privee, Notz Stucki & Cie SA and Banque Benedict Hentsch & Cie SA also have disclosed risks linked to Madoff.

“A lot of Swiss private banks were hurt,” Le Ber said. “Madoff was able to cultivate a circuit and put people in a position where they felt that opening an account was doing them a favor.”

Bank Safdie withdrew money in October 2005 that it had placed with Madoff because it wasn’t getting enough information about the investment, said Le Ber, 56.

“We were in a Madoff product until 2005, and we left because we believed we weren’t getting the kind of information or feedback that we needed,” he said. Safdie had as much as 4 percent of one fund invested with Madoff through a New York-based middleman and had positive returns that year, Le Ber said.

Madoff Losses in Switzerland

Union Bancaire Privee, the world’s largest investor in hedge funds, said in a Dec. 17 letter to investors that there is a “high likelihood” it will have to write down $700 million of investments with Madoff’s New York-based firm. Private bank Notz Stucki had assets of about 750 million francs in funds managed by Madoff, while Banque Benedict Hentsch said it has 56 million francs at risk.

UBP’s letter to investors, published on FINalternatives and confirmed by company spokesman Jerome Koechlin, said Madoff’s investment strategy “was not supposed to generate outsized returns” and that it relied on Madoff’s reputation as a regulated dealer and broker as well as regular audits.

Safdie, which has about 15 percent of its investments in hedge funds, said the Madoff affair “will produce a lot of regulatory work.”

The bank was founded by Edmundo Safdie, who left his native Syria and created Brazil’s Banco Cidade in 1965. It bought Kommerzialbank AG in Zurich and rebranded it Multi Commercial Bank in Geneva. The private bank then changed its name to Banque Safdie in 2003.

Missing the Target

The bank said it won’t meet its target of increasing assets under management by 10 percent in 2008 because of the fall in the dollar and volatile markets.

European banks have reported at least $12 billion of possible losses linked to Madoff investments. Lenders such as Credit Suisse, London-based HSBC Holdings Plc and Banco Santander SA of Spain say clients invested almost $5 billion with Madoff.

Credit Suisse urged customers more than eight years ago to withdraw cash from Madoff because the bank couldn’t determine how he made money, said three people familiar with the matter.

Oswald Gruebel, who headed the private-banking unit of Switzerland’s No. 2 lender at the time, made the recommendation after meeting Madoff in New York in June 2000, the people said, speaking anonymously because the details were private. Credit Suisse customers proceeded to redeem about $250 million from Madoff-run funds, half the total held by the bank’s clients, the people said.

To contact the reporter on this story: Warren Giles in Geneva at wgiles@bloomberg.net

Last Updated: January 7, 2009 19:01 EST