LuxAlpha Liquidation Sought by Regulator Over Madoff

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LuxAlpha Liquidation Sought by Regulator Over Madoff


By Stephanie Bodoni

Feb. 4 (Bloomberg) -- Luxembourg’s financial regulator will ask a court to liquidate Access International Advisors LLC’s LuxAlpha Sicav-American Selection fund over losses from investments it made with Bernard Madoff.

The Commission de Surveillance du Secteur Financier of Luxembourg, Europe’s largest mutual fund market, said in a statement on its Web site yesterday that its decision is aimed at “better protecting” investors’ rights.

LuxAlpha, which once had assets of $1.4 billion, is one of 17 Luxembourg funds and sub-funds that were forced to halt customer redemptions after disclosures of losses from investments with Madoff. Thierry Magon de La Villehuchet, chief executive officer of Access International, which managed LuxAlpha, was found dead in his New York office after potentially losing all of the money he invested with Madoff.

“LuxAlpha Sicav doesn’t comply anymore with all the rules governing the organization and functioning of” Luxembourg funds, said the regulator. The agency also took LuxAlpha off its list of official funds, which halts “all payments” to clients.

The decision will take effect within one month and at that point the regulator said it will ask a Luxembourg court to liquidate the fund.

The liquidators will have the right to take actions in the interest of shareholders against those in charge of the fund, the CSSF said. LuxAlpha is already being sued by several clients seeking their money back.

Court Cases

UBS AG’s Luxembourg unit, custodian to LuxAlpha, has appealed a Jan. 15 decision by a Luxembourg court ordering it to give Oddo & Cie. 30 million euros ($38.6 million) from the fund. UBS, which paid the money, is challenging the court’s decision to allow investor claims directly against custodians, Francois Kremer, the bank’s lawyer, told a judge in Luxembourg yesterday.

UBS and LuxAlpha are already involved in a second court case in Luxembourg, brought against them by KBL Richelieu and French insurer La Mondiale. Like Oddo, the investors made redemption requests to LuxAlpha before Madoff was charged with fraud and are seeking a court order forcing UBS to repay them.

A group of several hundred other investors who had placed bets with LuxAlpha and Luxembourg Investment Fund-U.S. Equity Plus today said they have received some documents from UBS referred to in fund offering materials and that HSBC Holdings Plc, custodian to another Madoff-linked fund, Herald (Lux) US Absolute Return Fund, will also give them access.

Information Request

Deminor, which is representing the investors, will file a lawsuit requesting more information from the custodians, including proof of contracts with Madoff, Erik Bomans, a partner at Deminor International, told journalists in Luxembourg today.

Gilles Dusemon, a lawyer for LuxAlpha at Loyens & Loeff in Luxembourg, couldn’t be reached to comment on the regulator’s request. Patrick Littaye, co-founder of Access International Advisors and a LuxAlpha board member, declined to comment.

Madoff was arrested Dec. 11 and charged with securities fraud in a federal court in New York after allegedly telling his sons his investment-advisory business was a Ponzi scheme. Madoff, 70, is free on bail and hasn’t formally responded to the charges or entered a plea.

The weeks since Madoff’s arrest have roiled Luxembourg as funds disclosed losses and France criticized the country’s rules with regard to the responsibility of fund custodians to cover investors’ losses. The regulator started investigating the potential liabilities in December.

LuxAlpha had $1.4 billion in assets as of Nov. 17, according to data compiled by Bloomberg. Investors in the fund include Rothschild & Cie Gestion, a unit of the Rothschild group, through its Elite fund.

Fund Custodian

Some 3,400 registered Luxembourg funds hold assets of more than 1.56 trillion euros ($2 trillion), compared with some 50 billion euros in the late 1980s, according to the country’s fund industry association. That’s some 30 percent of the 5.2 trillion euros in funds in Europe.

The funds at issue are mostly Undertakings for Collective Investment in Transferable Securities, or UCITS, which burgeoned in Luxembourg after it was the first nation to implement harmonized rules passed by the European Union in 1985.

The results of probes into the liabilities of custodian banks of Madoff-linked funds in Luxembourg will be completed “in the coming few days,” the agency said yesterday. Fund custodians have a legal duty to “know at all times in which manner the assets are invested and where and how these assets are available,” the regulator said.

To contact the reporter on this story: Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net

Last Updated: February 4, 2009 10:19 EST