11-12-2009: One Year post Madoff

Press Release

 

One year after the Madoff scandal was revealed, European investors have formed a pan-European syndicate aimed at recovering their losses suffered on funds with Madoff exposure. Deminor's analysis demonstrates that the Madoff feeder funds have been set up in breach of European rules, that investors have been misled and that the service providers failed to perform their contractual and legal duties. More than ever, Deminor's clients are determined to recover their losses from the responsible institutions. Investors cannot rely on actions undertaken by third parties, such as the US trustee or the funds' liquidators, if they want to benefit from a maximum recovery.

A. An international and diversified syndicate of more than 1.000 investors

 

As of today, Deminor represents more than 1.000 investors who have invested in the so-called "Madoff feeder-funds". These investors are mainly from Europe (The Netherlands, France, Italy, Germany, Switzerland and Belgium) and South-America (Argentina and Uruguay). They are individual or institutional investors, representing altogether losses of approximately EUR 400 million. Losses per investor range between EUR 5.000 to EUR 30.000.000.

Erik Bomans, a Deminor partner : "investors must understand the need to join forces in order to form a common representative front against the involved institutions' obstinate refusal to compensate losses despite clear evidence that they breached their legal obligations. We believe that only a collective representative investor action can lead to a successful outcome".

B. Achievements since December 2008 and update of legal analysis

 

Since December 2008, Deminor has been principally active on the following investment funds whose assets have been entrusted to and managed by Bernard Madoff Investment Securities LLC ("BMIS"): Luxalpha, Luxinvest, Thybo International, Plaza, Herald Lux, Kingate, Hermes and Fairfield. Court or regulatory actions have been taken in Luxembourg, Monaco and the British Virgin Islands. Proceedings in the Netherlands are being prepared.

Deminor has successfully undertaken pre-trial discovery actions before the Luxembourg courts in order to receive further information on the relationship between the involved financial institutions and BMIS. Documents revealed that Madoff cumulated all important functions and that there was no appropriate control mechanisms put in place by the designated custodians (i.e. UBS and HSBC) on BMIS's activities. Investors have been misled about the true nature of their investments since the prospectus has not mentioned essential information, and the legal guarantees attached to UCITS funds have been breached.

 

Erik Bomans: "we have serious indications that UBS and/or Ernst and Young have not correctly informed the Luxembourg financial authorities about the delegation of the custody to BMIS, as they were supposed to do in accordance with the Luxembourg regulations. Our analysis indicates that UBS and/or Ernst Young made materially wrong statements to the Luxembourg financial authorities by failing to mention that BMIS was UBS's sub-custodians for the Madoff "feeder funds"".

Following these pre-trial actions and the completion of its analysis, Deminor filed in October 2009 an action for damages against several UBS entities in Luxembourg. Legal actions against HSBC, Citco, Ernst & Young and PwC are in the process of being finalised and will be filed shortly before the appropriate courts.

 

Deminor wrote at several occasion to the Commission de Surveillance du Secteur Financier ("CSSF"), the Luxembourg financial regulatory authority. Deminor recently demanded that the CSSF sanctions UBS as investment manager of Luxalpha for violation of Luxembourg law. CSSF has not replied so far to Deminor's arguments.

Erik Bomans: "We strongly believe that BMIS did act as investment manager, and not only as custodian and broker. Facts demonstrate that UBS knew that BMIS was doing more than the execution of orders. The delegation to BMIS was therefore in breach of the applicable Luxembourg and European laws, since the functions of investment management and custody cannot be delegated to the same entity. The set-up of the fund was illegal from the very beginning". Deminor urges the CSSF to withdraw UBS's licence as investment manager in Luxembourg.

 

Despite clear evidence that they breached their contractual and legal obligations, the major international institution which acted as custodians, investment managers or auditors of the funds have so far failed to recognize their responsibilities. Investors need to file actions on the merits to claim damages before the appropriate jurisdictions, as a "sit back and wait" attitude may lead to an exclusion from any recovery and is not likely to force these institutions to change their current attitude.

 

* * *

Contact person:

Erik Bomans
Deminor International SCRL
+32-2-674.71.10
erik.bomans@deminor.com

2_1_Deminor_Madoff case_press release_11 December 2009.pdf