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Updated: December 9, 2010 16:20 IST

Battle over Madoff fraud shifts to U.K.

Simon Goodley
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Disgraced financier Bernard Madoff exits Manhattan federal court in New York. File photo
AP
Disgraced financier Bernard Madoff exits Manhattan federal court in New York. File photo

The legal battle over the collapse of Bernard Madoff’s $50bn Ponzi scheme moved to London last night (8DEC) when liquidators of the fraudster’s empire named all the directors of the London subsidiary in a new lawsuit.

The news opens Madoff’s London operations to scrutiny once again, following the decision by the U.K. Serious Fraud Office in February not to take any action against Madoff Securities International (MSIL) or its directors due to “insufficient evidence to provide a realistic prospect of conviction”.

Yesterday’s high court complaint - which names the likes of Madoff’s brother, Peter, and sons Mark and Andrew, in addition to Sonja Kohn, who has been charged separately for other Madoff-related fraud - will attempt to recoup $80m.

It brings “personal claims against the directors and officers for breaching their duties to MSIL, in part by making fraudulent payments to various Madoff-related entities, including payments for luxury goods and services enjoyed by Bernard Madoff and the Madoff family, including a yacht, a home in the south of France and an Aston Martin car”.

The liquidators also allege that more than $27m was channelled through “MSIL to corporate vehicles used by Sonja Kohn, in sham transactions purported to be payments for research and other services but which were actually kickbacks paid out of BLMIS [Bernard L Madoff Investment Securities, the main U.S. firm]”.

Irving Picard, the court-appointed trustee for the liquidation of BLMIS, said: “MSIL was part of Madoff’s global shell game. Funds stolen in the Ponzi scheme travelled around the world, but ultimately ended up in the pockets of Madoff, his family and confederates like Sonja Kohn. The London operation was a critical piece of the facade of legitimacy that Madoff constructed to conceal BLMIS’s lack of actual trading activity.” Mr. Picard added: “Madoff represented to his customers that BLMIS conducted trades on the over-the-counter market, after hours, and substantiated this misrepresentation by periodically transferring tens of millions of dollars to MSIL. In reality, however, MSIL never used such funds to purchase securities. The fact that MSIL was supposedly a legitimate, FSA-regulated entity assisted Madoff’s dishonest purposes.” The U.K. scheme is alleged to have included at least $600m paid into MSIL from sources controlled by Bernie Madoff, while more than $310m were transferred from BLMIS to MSIL, then back to BLMIS, “where the transactions were falsely recorded as trading commissions from London”.

Lawyers for Peter, Mark and Andrew Madoff - as well as Kohn - did not respond to the Guardian’s requests for statements.

The latest lawsuit emerged on the same day as Picard raised his previous claim against Swiss bank UBS to $2.5bn, an increase of $550m, which was another in a string of other new cases that have been filed as the statute of limitations deadline for such claims nears on 15 December.

Earlier this week Picard also said he is to sue HSBC (bank) and others for $9bn in New York, in a suit that alleges HSBC remained “wilfully and deliberately blind” to Madoff’s multibillion-pound fraud by ignoring warnings from accountants KPMG that Madoff’s phenomenal investment record was too good to be true.

The HSBC and UBS cases also follow a $6.4bn suit against JP Morgan. All the banks deny the claims and insist that they will defend themselves against the allegations.

Up until yesterday, the U.K. had largely avoided being dragged directly into the Madoff scandal, except for a few high-profile London-based investors who lost money such as Nicola Horlick and Arpad “Arki” Busson.

In March of last year, Madoff pleaded guilty to 11 counts of fraud and was subsequently sentenced to the maximum of 150 years behind bars for fleecing hundreds of investors out of tens of billions of dollars. The scam is widely referred to as the largest Ponzi scheme in history.

Just before he was sentenced, he said: “I am responsible for a great deal of suffering and pain. I understand that. I live in a tormented state now, knowing of all the pain and suffering that I have created.”

Copyright: Guardian News & Media 2010

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