for-phone-onlyfor-tablet-portrait-upfor-tablet-landscape-upfor-desktop-upfor-wide-desktop-up

UPDATE 1-UBS, HSBC face investors' complaint in Madoff case

(Adds comment from HSBC, last paragraph)

ZURICH, Jan 8 (Reuters) - Investor activist group Deminor said on Thursday it is to file a legal complaint against UBS UBSN.VX, HSBC HSBA.L, Hyposwiss and others for allegedly neglecting clients who invested in Madoff-related products.

The complaint will be filed before the end of the month in courts in Luxembourg and Ireland, where the funds through which some of the banks’ clients invested are located, Fabrice Remon, who heads Deminor France, told Reuters.

The banks involved acted as depository banks for the funds and did not verify the true nature of the investments, Remon said. Former Nasdaq chairman Bernard Madoff was arrested last month for allegedly running a multi-billion dollar fraud. “We blame UBS and HSBC ... for their role as depository bank and controller,” Remon said.

“People realise now the responsibility is at the level of the depositary banks, who did not do their job in checking what was inside (the portfolios).”

Remon said Deminor decided to act after investors’ complaints last week.

He said the investments at the centre of the complaint were labelled as UCIT, an EU regulated retail mutual fund product that can be sold across the EU in return for strong consumer protection.

Some clients of UBS invested in Madoff-related products through the Luxembourg-based fund Luxalpha.

For HSBC, the fund involved was Ireland-based Thema. Swiss private bank Hyposwiss has said in a statement some of its clients were directly affected by the Madoff scandal through investments. The Luxembourg financial watchdog said earlier this month it had opened an investigation into funds that had assets deposited with Madoff to establish the responsibility of all parties involved, including those of depositary banks.

The depositary bank “must know at all times in which manner the assets are invested and where and how these assets are available,” the supervisory body said in a statement.

UBS said it did not recommend investments in Madoff products but did set up Luxalpha to allow some of its clients to invest in the products.

“UBS has supported clients by establishing a fund structure at their request,” a spokeswoman from UBS.

“Bernard Madoff Investment Securities LLC and Madoff’s collective investment vehicles were not on the Wealth Management recommended list as direct investment options.”

HSBC referred to its Dec. 15 statement on its exposure to the alleged Madoff fraud, which said it has custody clients who had invested with Madoff.

“HSBC does not believe that these custodial arrangements should be a source of exposure to the group,” it said. (Editing by Andrew Macdonald, Greg Mahlich)

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

for-phone-onlyfor-tablet-portrait-upfor-tablet-landscape-upfor-desktop-upfor-wide-desktop-up