France launches formal probe into Madoff fallout

PARIS, May 28 (Reuters) - The Paris prosecutor's office has launched a formal probe into the ramifications in France and Luxembourg of the fraud by disgraced Wall Street financier Bernard Madoff, a spokesman said on Friday.

Proceedings are underway for aggravated betrayal of trust, aggravated fraud, handling of stolen goods by a criminal group and money laundering by a criminal group. A financial examining magistrate will be appointed later.

The proceeding comes after a French woman filed a suit in January against Swiss bank UBS (UBSN.VX)(UBS.N), which had already been targeted by a preliminary investigation by the Paris prosecutor's office and the police.

The woman placed 540,000 euros ($755,600) with UBS in 2006 and the company invested the money in the LuxAlpha fund in Luxembourg, which invested in Madoff-related products.

The bank's action was illegal and constituted fraud and a betrayal of trust, said the plaintiff's lawyer, Jean Reinhart.

Documents provided by the Swiss bank, which declined to comment, said it invested primarily in property stocks in the United States. Reinhart said investors had been misled as they were unaware of Madoff's involvement.

SEIZING ASSETS?

The appointment of the examining magistrate, who is independent and has more investigatory clout than the prosecutor's office, raises the pressure on French banks and financial institutions.

The examining magistrate is also well-versed in dealing with proceedings concerning the seizing of assets owned by Madoff in France, in particular a yacht and a villa on the French Riviera.

The villa had been part of a sale agreement to a Russian businessman for 1.1 million euros, which led Reinhart to demand the seizing of assets.

The prosecutor's office is also handling two other preliminary investigations linked to the Madoff scandal.

The first was launched in mid-March and led to a raid of BNP Paribas' headquarters in Paris on March 26. This followed a lawsuit filed by a BNP Paribas client, who claimed to have lost 2 million euros due to fraud in a fund managed by Madoff.

The second probe involves a Paris-based financial firm which advised a businessman to place his entire savings in a speculative fund which had invested with Madoff.

Suspected of committing a $65 billion fraud which has hit financial institutions all over the world, Madoff has been in prison in the United States since March 12. He has pleaded guilty and a verdict will be handed down on June 16 without a trial.

France's top securities regulator estimated that total losses linked to Madoff in the country come to an estimated 500 million euros. Fashion designer Daniel Hechter has publicly admitted to having lost part of his fortune, while L'Oréal investor Liliane Bettencourt is also among the victims. (Reporting by Thierry Lévêque, Writing by Sophie Taylor; Editing by Rupert Winchester) ($1=.7146 Euro)