Difficult therefore to restore confidence

Almost a year after the revelation of the Madoff scandal, customers adversely affected by its management have still not been compensated. The money disappeared in the maze of his Ponzi scheme, which was to compensate former customers with force of interest from the capital brought about by the newcomers. The legend will retain that $ 65 billion would be gone in smoke. 21.2 billion would have been truly lost. In France, the authority of des marchés financiers (AMF) was encrypted, there is the "Palm" of management companies a year, to EUR 500 million. Sad case. Financial intermediaries have seen anything of the deceit and commenced their clients. Regulators have been abused. When it comes today to pay someone, the main author of this scam, Bernard Madoff, who fined 150 years in prison, it is difficult to designate a responsible.

Major financial institutions which played a key role in the book, often at their costs, are able to escape. This is to forget the regulation. A full House at a time where the actors making under texts both European and local. Investors sometimes little silvery, unlike the mediated notion that Madoff funds were for the rich see, helplessly, that the string of investment is not reliable. Difficult therefore to restore confidence. Review of details of the faults of a little engaging system.

Short-sighted regulators

Harry Markopolos, derivatives expert, was interested in the martingale Madoff funds, managed under cape by the U.S. broker, to display a regular and reasonable, between 7 and 15, and this performance, which allowed for many years. Even during the darkest periods. A true cure anti-crisis. In 1999, he had already alerted the Securities & Exchange Commission (SEC), Constable of the American Stock Exchange, the Madoff case. In November 2005, he repeated his warnings, this time ci through a detailed report entitled "the largest"hedge fund"the world is a fraud." Many red flags ("red flags") that lists Harry Markopolos, i.e. the aberrations of the Madoff system, should intrigue the regulator. 6 Serious complaints received over the years, the SEC has triggered that three investigations, which led to nothing. And suddenly, the broker is used it to strengthen its credibility. Internal control in the SEC report, published in early September, pointed errors of "Constable of the Fellowship", the inexperience of the investigators in the absence of interro scheme of third parties, through the antagonizing of services.

Yet, "Bernie" has been hot. In an examination conducted by the Inspector General of the SEC, David Kotz, after the revelation of fraud, the person said "flabbergasted" to not have been pinned. In 2006, it has not gone away. Inspectors investigated the practice of the "front running", which is a broker, to execute orders for its own account taking advantage information related to the orders of the clients. They could then see that it was that of the wind. The Financial Industry Regulatory Authority (Finra), the stakeholders on the markets regulator, has not seen that Bernard Madoff was exercising an activity of Council in investment in parallel with its official trades. It justifies its error by the lack of regulation in the Council in investment activities. Thus, nearly 1,000 companies are registered as broker and Advisor. Unthinkable in Europe.

A mere formality for funds

In Europe also, Bernard Madoff was able to pass between the cracks. Funds so-called foster its system elected domicile in countries with the regulatory flexibility. The Luxembourg and the Ireland, to name them, thus sitting their predominance in the management and became Ucits, the European label fund distribution platforms, across the Union and to Asia. To save the mutual funds or funds, financial authorities rely on the prospectus of the products, in other words their passports. When they are presented by renowned institutions, there is no cause for concern. Sicav Luxembourg Luxalpha, LuxInvest and Herald, as well as the Thema Irish Fund, had the best recommendations that they are. With UBS and HSBC as custodians, doubts were swept away. Only, the regulators have not asked for access to other documents binding on the parties. The Luxembourg Commission de surveillance du secteur financier (CSSF) does not require subscription newsletters and cannot see responsibilities exemption clauses, and even less the "operating memoranda", internal documents that explain the operation of the Fund. They simply hope they conform to the realities of the prospectus. Yet institutions covered by the numerous complaints of investors brandish them as a defence.

Once approved by a European regulator, a fund can wander freely in Europe, must receive an approval on the part of regulators in each country. Luxalpha is entry in France.

Restive depositories

The dealers are the guardians of the assets of investment funds. They have an obligation of restitution of assets. Only, the Madoff in Europe, UBS and HSBC Fund custodians, does still not become Act, provoking the anger of

aggrieved clients. Irish and Luxembourg regulators have attempted to compel them, within gaps in the device of the depositories. The Luxembourg, UBS had, in February, three months to repair. End of may, it is was developed standards. Everything is better. It is the turn of HSBC to review its processes. Only clients do are still not compensated. The low power of sanction of the CSSF, limited to a fine of 12.500 EUR, may frighten them. The Supreme punishment, withdrawal of the approval to exercise, is the responsibility of the Minister of the Budget. The case becomes political. And social. For example, UBS employs around 700 people in the Grand Duchy. The limits of the exercise are perhaps.

A delegation of roles on the sly

Tower of legerdemain. The assets were finally not among stakeholders. Luxalpha subscription newsletters were the delegation state of the assets to the American broker, who needed to cover options launched by the Fund in its strategy. However, this passage from witness removes nothing the responsibility of the depositary, who shall keep an eye on the assets entrusted to a third party. In addition, the delegation is made also in management. UBS again and the Austrian Bank Medici, referred to above, funds were left to Madoff the care to manage the assets. Bernard l. Madoff Investment Securities (BMIS), the brokerage of the operator company, had therefore functions. The best way to conceal his scam. Finally, intermediates used to boxes in the letters, but were paid. UBS would thus affected more than 66 million Luxalpha. System Madoff, custodians, managers, developers, auditors, consultants, distributors were not unhappy.

Unsuspecting intermediaries

Red flags referred to Harry Markopolos should deter managers to amouracher Madoff funds. Some intermediaries have pushed their curiosity to go to achieve a "due diligences" in the wizard of the markets. Some fled, already seeing that it was both broker and Manager, he put forward his knowledge of orders books and especially that he did not deliver its secrets, which, in management, is more usual. Others set themselves to seduce by personality and fell in the Panel. They brought their assets to manage, and those of their clients.

Behind, by appealing to large houses, such as UBS and HSBC, touts such Access International Advisors, led by Patrick Littaye and the Villehuchet Thierry - the latter committed suicide in New york shortly after the revelation of the scandal-, have also strengthened the credibility of the Madoff management. At the time, management companies, private banks, the "family offices", concurred with eyes closed. So it was possible for years to divest its shares and pocket the interest more easily than in any other "hedge fund" to which these funds were related. Liquidity was provided every fifteen days, usually against the month or the quarter for hedge funds.

Marketing to variable dimension

Luxapha, because of its status as European coordinated fund, was accessible to the greatest number. Some individuals even agreed, via online brokerage sites. But everybody does not pass through this channel. The wealthy were allowed for custom processing. And had thus access, and more, non-marketed by France, funds domiciled sometimes in countries which good smack the exoticism. Access International Advisors teams contributed to place these vehicles in the gotha and the people in France. The technique: the simmer. For the right of access to the management of Madoff, rich investors have to wait weeks or even months, with "does the say to anyone especially." In the beginning, there were Oréade, a fund dedicated to Liliane Bettencourt, the richest woman of France, heir to L'Oreal. A club specifically, Fund which cooptait the chosen. And who, in 2004, that the continuing adventure then that Oréade lowered the curtain, requested a suite. It was called Luxalpha.

Since April, the financial markets authority has launched controls on several intermediaries who sold on the French market of Bernard Madoff's fraudulent financial products. The French regulator said that these controls were "including" on the way in which certain products related to Madoff, Luxalpha and other funds, could be marketed in France. The MFA seeks to ascertain whether the relevant rules have been met.

Shareholders in need of recognition

In the books of the sicav, the visible shareholders are not final investors. Use in Europe, and not only to the Luxembourg. Indeed, only the levels of conservative accounts by moving orders are registered. A them to pass the movements on the accounts of the clients. Only, this practice, although efficient in writing game, is a bulwark for the rights with in their judicial offensive against UBS. The Swiss Bank does not know. And does not recognize their capacity as shareholders. Lawyers and liquidators of the Luxembourg SICAVs Madoff-related seek a solution. Likely levels of conservative accounts must record in justice on behalf of their clients.