Last Updated Nov 24, 2010 1:50 PM EST
So claims Irving Picard, the court-appointed trustee in charge of recovering money for Madoff's victims, in a new lawsuit charging the Swiss banking giant with 23 counts of financial fraud and misconduct. Picard wants UBS to pay a total of $2 billion, including damages, fees and any funds the company might have withdrawn from Madoff's firm before it collapsed.
The trustee accuses UBS of turning a blind eye to Madoff's criminal activities. Said David Sheehan, Picard's lawyer, in a statement:
As we allege in the complaint, 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.Specifically, the suit says UBS "actively assisted" Madoff by serving as the sponsor, custodian and administrator of the so-called feeder funds that pumped money into the scheme. That lent an "aura of legitimacy" to Madoff and allowed him to run the operation with no checks and balances, according to the complaint.
And while as administrator of the funds UBS was supposed to monitor Madoff, the financial giant let him keep -- and cook -- the books. Meanwhile, UBS and its affiliates pocketed $80 million in fees. Picard alleges in the suit:
The 'fees' they received in their various roles were nothing more than 'fees' for looking the other way, and lending their prestigious name to legitimize and attract money.As part of the suit against UBS, Picard is even going after the widow of deceased hedge fund manager Rene-Thierry Magon de la Villehuchet, who committed suicide after Madoff's scam came to light.
De la Villehuchet was co-founder of a firm, called Access International, that raised money for Madoff from European investors. After his death, his wife became the sole executor of his estate. Access International "perpetuated the fraud by opening the door to substantial investments from Europe," the suit states.
The investment funds that funneled money to Madoff on behalf of their clients withdrew nearly $800 million from the firm in the three months before the scheme unraveled, and a total of $1.1 billion over six years. Picard wants that money back. Under the law, he had to file suit by next month in order to recover those funds.
While Madoff's ruse was intricate, his crime was straightforward. Which is why UBS could find itself in trouble if Picard can show that the company did, in fact, carry on doing business with Madoff despite suspecting fraud. In a court of law, however, proving that someone was aware of fraud is usually no easy feat.
Investors in a fund that steered money to Madoff were recently awarded $12.7 million. That sum is a good indication that UBS will never come close to having to fork over $2 billion -- investor attorney always "go long" in such cases. But the company could well end up on the hook for a sizable settlement.
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