NEW YORK/ZURICH (Reuters) - The trustee seeking to recover money for defrauded Bernard Madoff investors has sued UBS AG and others for more than $2 billion, accusing them of collaborating in the imprisoned swindler’s massive Ponzi scheme.
UBS was accused of sponsoring foreign feeder funds that sent client money to the once-respected money manager, lending them “an aura of legitimacy” while shielding itself from liability through secret side agreements.
Despite identifying red flags at Bernard L. Madoff Investment Securities LLC, the Swiss bank and feeder funds “chose to enable Madoff’s fraud for their own gain,” collecting at least $80 million in fees, court-appointed trustee Irving Picard said in a 107-page complaint.
“Madoff’s scheme could not have been accomplished unless the UBS defendants had agreed to look the other way and to pretend that they were truly ensuring the existence of assets and trades,” the complaint said. “In fact they were not and never did.”
The complaint alleges 23 counts of fraudulent transfers and other misconduct.
In a statement, UBS called Picard’s allegations “completely unfounded and without merit” and pledged to defend itself.
The estimated $65 billion Ponzi scheme run by Madoff for decades was uncovered on December 11, 2008, and cost thousands of former clients all or most of their savings.
Madoff, 72, pleaded guilty in March 2009, and is serving a 150-year sentence in a North Carolina federal prison.
Prosecutors have also filed criminal charges against seven people tied to Madoff. Two of them have entered guilty pleas.
Picard, a partner at Baker & Hostetler LLP in New York, is liquidating Madoff’s investment business.
He has filed at least 20 “clawback” lawsuits to recover $17.5 billion from feeder funds that steered money to Madoff’s firm, friends and family members, as well as others.
The trustee filed his complaint against UBS under seal with the U.S. Bankruptcy Court in Manhattan on Tuesday. He made an edited version available to the public on Wednesday.
Picard accused UBS of working with co-defendant Access International Advisors LLC and associated individuals “to extend the Ponzi scheme to European investors.”
Access was once led by Thierry Magon de la Villehuchet, a French executive found dead in an apparent suicide in New York less than two weeks after Madoff’s fraud was uncovered. He was reported to have been distraught over losing up to $1.4 billion of client money.
Other defendants include the feeder funds Luxalpha SICAV, with offices in Luxembourg, and Groupement Financier Ltd, with offices in the British Virgin Islands.
The complaint said these firms withdrew $796 million in the 90 days before his firm was forced into bankruptcy after the fraud was revealed, and $1.12 billion in the prior six years.
UBS said in its statement that Luxalpha was created for wealthy clients who requested a fund to let them invest with Madoff.
“UBS does not have responsibility to these shareholders for the unfortunate results of the Madoff scandal,” the bank said.
Alain Rukavina, a Luxalpha liquidator, said about the lawsuit: “We have to see if there are any conflicts with our case.”
A representative for Groupement Financier did not return a request for comment.
It is unclear whether Picard plans to pursue lawsuits against other European banks.
In March, a Luxembourg court rejected efforts by former Madoff clients to file direct claims against UBS, saying they must instead seek recovery through Madoff’s liquidators.
That ruling signaled that investors who claim to have lost nearly $1 billion through Herald, a fund affiliated with a Luxembourg unit of British bank HSBC Holdings Plc, might have to pursue the same path.
HSBC declined to comment.
Picard said he has through September 30 recovered $1.5 billion for former Madoff clients. He is also reviewing which clients are entitled to recover, and through November 19 has accepted 2,305, or 15 percent, of the 15,105 claims he has reviewed.
The case is Picard v. UBS AG et al, U.S. Bankruptcy Court, Southern District of New York, No. 10-ap-04285.
Reporting by Santosh Nadgir in Bangalore, Jonathan Stempel in New York, Jason Rhodes and Martin de Sa'Pinto in Zurich and Laurence Fletcher in London; editing by Gopakumar Warrier, Ted Kerr, Robert MacMillan and Andre Grenon