Luxembourg Regulator Points Finger At UBS In Madoff Case

Nick Parmee

26 February 2009

The Luxembourg financial regulator, CSSF, has said UBS did not have enough checks in place to assess the risk of investing in the Madoff funds.

UBS is currently facing legal action from investors allegedly advised by UBS to place funds with Luxalpha, one of several Luxembourg-based hedge funds that lost at least €1.7 billion ($2.2 billion) in the Madoff debacle.

CSSF has told UBS that its Luxembourg branch did not have enough staff, procedures or internal rules to comply with local regulations and gave UBS three months to make changes.

In a statement headed "Affaire Madoff", it said that inadequate due diligence breaches a bank's duty to supervise investments and can consequently constitute a violation of a substantial contractual obligation.

The regulator also said banks are responsible for supervising and following investment funds they promote and must know where and how money is invested and how it can be withdrawn.