UBS AG (UBSN), the Swiss wealth-management firm sued for fraud by the trustee liquidating jailed con man Bernard L. Madoff’s assets, denied complicity in the Ponzi scheme and said clients knew with whom they were dealing.
Irving H. Picard, trustee for the liquidation of Bernard L. Madoff Investment Securities LLC, is seeking at least $2 billion in behalf of Madoff’s victims, according to the complaint, filed yesterday in U.S. Bankruptcy Court in New York.
The allegations “are completely unfounded and without merit,” Kelly Smith, a spokeswoman for UBS, said today in an e-mailed message. One fund sponsored by UBS “was created at the explicit request of wealthy clients who requested a tailor-made fund to enable them to continue investing their assets with Madoff,” Smith said.
“UBS does not have responsibility to these shareholders for the unfortunate results of the Madoff scandal,” she said.
Picard is seeking redemptions and fees from Zurich-based UBS as well as damages and disgorgement.
“Madoff’s scheme could not have been accomplished unless UBS had agreed not only to look the other way, but also to pretend that they were truly ensuring the existence of assets and trades when in fact they were not and never did,” David J. Sheehan, a partner at Baker & Hostetler LLP and counsel for Picard, said in an e-mailed statement.
The complaint, alleges 23 counts of financial fraud and misconduct against UBS “and related entities and individuals.” The full complaint was filed under seal, followed by a redacted version blanking out information deemed confidential by UBS, Switzerland’s largest bank.
Picard suggests UBS tried to distance itself from the convicted New Yorker. In a 2005 memo, one UBS-sponsored fund said neither of two affiliates “should ever enter into a direct contact with Bernard Madoff!!!” according to the complaint.
UBS “took this unusual step so as to avoid creating any sort of record concerning any inquiry regarding Madoff,” the complaint says.
Madoff insisted “that his name not appear in any official offering document” relating to the feeder funds, Picard said.
“By complying with Madoff’s demand for secrecy,” the defendants “ignored a red flag” and “assisted Madoff in concealing the size and scope of his expanding fraud,” according to Picard.
In today’s statement, Picard said he has “battled with UBS regarding disclosure of information about the bank’s knowledge of Madoff.”
Making Complaint Public
“We intend to move to have that designation removed and the complaint made public as soon as possible,” the trustee said.
The complaint, in addition to UBS, names the bank’s UBS (Luxembourg) SA unit. UBS is accused of assisting Madoff through its role in feeder funds including LuxAlpha Sicav and Groupement Financier Ltd.
As custodian of the funds, the Luxembourg unit was charged with overseeing them and managing deposits and payments to investors.
UBS ignored signs of the fraud and made Madoff the sub-custodian of the funds’ assets, allowing him “to run an operation with no checks or balances,” according to the complaint.
LuxAlpha, which lost 95 percent of its approximately $1.4 billion in assets, was dissolved four months after Madoff’s arrest in December 2008. Liquidators for LuxAlpha are suing UBS and Ernst & Young LLP, the fund’s auditor, seeking the return of the lost assets.
UBS and its local units have been sued for damages and compensation in more than 100 Luxembourg cases by investors who lost millions of dollars through the funds. UBS was also the target of a probe by prosecutors over allegations of forgery tied to funds linked to Madoff.
The Luxembourg liquidators said in May in a letter to investors obtained by Bloomberg News that Picard is taking steps that may have a “significant effect” on recoveries and that they will “resist” his requests for documents that may identify LuxAlpha investors.
The Luxembourg liquidators may be the last resort for investors to recoup some of the millions LuxAlpha lost after a March 4 ruling by Luxembourg’s commercial court that liquidators alone can recover capital assets.
Picard previously filed about 20 lawsuits seeking to recover more than $15.5 billion from parties related to Madoff, including his friends and family, and from so-called feeder funds, which directed most or all of their clients’ money to the confessed swindler.
Madoff, 72, was charged with securities fraud for directing the biggest Ponzi scheme in U.S. history. He pleaded guilty in March 2009 and is serving a 150-year prison sentence.
At the time of his arrest, Madoff’s account statements reflected 4,900 accounts with $65 billion in nonexistent investments. Investors lost about $20 billion in principal.
The case is Picard v. UBS AG, 10-ap-4285, U.S. Bankruptcy Court, Southern District of New York (Manhattan).