April 23, 2009 / 1:17 PM / 9 years ago

PREVIEW-Swiss Madoff investors await Aurelia ruling

* Will determine if 5 directors face criminal charges

* Cases against international banks could follow - lawyer

* May prompt asset managers to settle out of court

By Martin de Sa’Pinto

ZURICH, April 23 (Reuters) - A key ruling due this week could spark a wave of litigation from wealthy clients of Geneva-based asset managers who lost up to $10 billion to Bernard Madoff’s fraud, a legal expert said.

Directors of Aurelia Finance, a company which legal sources say lost up to $800 million in Madoff-related funds, will hear on Friday if they are to be formally charged in a criminal case brought against them by prosecutors.

“If Aurelia directors are charged it will spark a number of other cases from investors, who have lost money to Madoff, against international banks in Geneva,” Francois Canonica, a lawyer acting for several investors nursing Madoff losses, said this week.

Banks who lost money in the fraud, through asset management units, include Spain-based Santander (SAN.MC), Italy-based UniCredit (CRDI.MI) and Swiss-based EFG International (EFGN.S).

It could also encourage directors of other asset managers with Madoff losses to seek out-of-court settlements with investors rather than risk having their assets seized by the court, Franco Foglia from the Swiss Lawyers Association, said on Thursday.

Many clients of Geneva-based wealth managers Union Bancaire Privee and Santander-owned Optimal have accepted proposals not to press charges on their Madoff losses in exchange for the return of a proportion of their assets. [ID:nLC96837]

On Thursday, Geneva-based Notz Stucki said it, too, would partially reimburse some of its Madoff-hit clients. [ID:nLN642601]

“If criminal charges are rejected all the way to the Swiss Federal Tribunal, investors will claim through the civil court, albeit with a weakened case,” said Foglia, who will represent Madoff clients in other cases.

“It is almost sure the directors will be charged,” he said. Swiss asset managers were among the biggest investors in Madoff’s scheme, in which some $65 billion was allegedly lost, with Geneva-based managers particularly hard hit.

Prosecutor Dario Zanni confirmed several cases have been considered by Geneva prosecutors, against Aurelia and others.

“Only a handful of investor complaints have been heard so far, but many investors are waiting on the outcome of the Aurelia judgement before deciding what to do,” he told Reuters.

Aurelia’s Madoff losses came mainly through investments in Hermes World Fund, a Madoff feeder fund listed in Dublin in January 2004, and unrelated to London-based asset manager Hermes, which acts as the executive arm for BT Group Plc’s (BT.L) UK pension scheme. Investors may be less wary of listed funds, which are subject to regulatory oversight, than unlisted funds, which are not.

“We don’t know how the money was invested once it was passed to Hermes, it probably went directly into Madoff, but it seems a lot of fees and commissions were paid, such as front loads, finder’s fees, management and performance fees,” Zanni said.

Geneva Cantonal Administration examining magistrate Marc Tappolet froze the assets of all five Aurelia directors after preliminary hearings on claims from some 30 Madoff victims who, lost around $30 million in Aurelia.

The Aurelia directors have asked to have their assets unfrozen.

Tappolet will decide on Friday whether four directors — Vladimir Stepczynski, Pascal Cattaneo, Olivier Ador and Jean-Marc Wenger — should face criminal charges for mismanaging investor assets.

The same decision regarding a fifth director — Laurent Mathysen-Gerst — is due on Monday.

“We will decide how to proceed after the hearings,” said Zanni, referring to whether the prosecution would press on with criminal charges or prepare a case through the civil courts.

Many have said they would bring legal proceedings against their asset managers.

Others who have lost a sizeable chunk of their assets may decide not to act, given the expense of such proceedings.

Editing by Simon Jessop

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