In mid-December, Swiss bank UBP wrote a detailed letter to clients explaining why it had blown $700 million of their money on the Madoff scam. Here’s what the letter didn’t say:
- UBP’s research department had raised many concerns about Madoff and had recommended that he be stricken from the firm’s list of approved managers.
- The research department’s concerns had been shared with UBP’s senior management
- The firm kept right on investing anyway
WSJ: In an email exchange during February and March 2008 reviewed by the Journal, UBP’s then-deputy head of research, Gideon Nieuwoudt, listed a number of worries, including the lack of even basic information such as how much Mr. Madoff had in assets, how many feeder funds there were, and how the investment strategy worked.
In one email, Mr. Nieuwoudt said he had spoken to more than 100 funds that invest or had invested with Madoff, but none of them could explain how the strategy produced such consistent returns. “It all seems very opaque,” wrote Mr. Nieuwoudt, who had previously worked for a hedge-fund consultant.
Mr. Nieuwoudt recommended in the email that Mr. Madoff be taken off UBP’s list of approved funds, which included more than 200 asset managers that had cleared UBP’s screening process.
Among those included in the email discussion were at least two members of UBP’s executive committee: Christophe Bernard, who headed the asset-management business, and Michael de Picciotto, head of the bank’s treasury. Mr. de Picciotto is a nephew of the bank’s founder, who also plays an active role in the alternative-investment business.
The concerns were also discussed during at least one investment-committee meeting, according to people familiar with the matter.
This, by itself, means little more than that the Madoff red flags were waving wildly for anyone who cared to pay attention to them, and UBP’s senior management apparently didn’t. But litigators will certainly want to probe further into why UBP left clients’ money with Madoff despite the research department’s concerns.
The following details, also from the WSJ story, may shed light on this:
UBP invested with Mr. Madoff via four different feeder funds, including one run by Fairfield Greenwich Group of New York, one of the main conduits for investors in Mr. Madoff’s funds. By early 2008, Mr. Madoff was among UBP’s top five holdings, according to one of the people familiar with the matter.
Aside from its investments in Fairfield, UBP had close ties to the firm, providing advisory and other services to the management company of Fairfield’s fund-of-funds division. Beyond that, three Fairfield funds invested in UBP’s own Madoff feeder fund, called M-Invest Ltd., according to a person familiar with Fairfield.
We’re just guessing, but we assume those incestuous cross-holdings of UBP and FGG funds, along with UBP’s advisory relationship with FGG, produced some nice fat fees for both FGG and UBP–all of which were directly tied to Bernie Madoff. In a year in which just about every honest investment on the planet is blowing you and your clients out of the water, it’s hard to kill the goose that just keeps laying the (fake) golden eggs.