Inside a Swiss Bank, Madoff Warnings

LONDON -- Swiss bank Union Bancaire Privé kept hundreds of millions of dollars of its wealthy clients' money in Bernard Madoff's alleged Ponzi scheme despite warnings from its own research team, according to people familiar with the matter.

While others in the investment community had questioned Mr. Madoff's strategy and chosen to stay away, the instance offers a sign that red flags were raised within one of the large institutions that actually invested with Mr. Madoff.

Union Bancaire Privé, known as UBP and one of the largest investors in hedge funds globally, was part of an international network of so-called feeder funds that channeled money into Mr. Madoff's investment firm. The Geneva-based bank has said it has about $700 million in Madoff-related investments through its funds-of-funds and client portfolios.

By early 2007, though, UBP's research department had raised various concerns about Mr. Madoff's business, and later recommended that he be stricken from a list of fund managers approved for its clients' investments, according to people familiar with the matter and internal emails reviewed by The Wall Street Journal.

UBP executive Christophe Bernard, top, was among officers in an discussion recommending against investing with Bernard Madoff.

The people say that some of the bank's most senior executives were aware of the concerns and discussed them. It is unclear how the matter was resolved, but UBP ultimately left hundreds of millions of dollars of its clients' money with Mr. Madoff.

UBP has told clients it was the victim of a "massive fraud," and that it conducted due diligence, including visits with Mr. Madoff and various principals. A UBP spokesman Tuesday said: "We make no further comment at this stage, as the U.S. government is currently investigating the Madoff case."

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.

The UBP spokesman said Messrs. de Picciotto and Bernard weren't available for comment. Mr. Nieuwoudt left UBP last year to join another firm.

UBP has said it took comfort from the fact that Mr. Madoff's firm was registered with the Securities and Exchange Commission, among other factors.

In recent weeks, the bank has said it is reducing the number of funds on its approved list and is tightening its procedures for screening managers. For example, it is requiring all of its managers to use independent administrators, which help guard against fraud by serving as a third party responsible for confirming that a manager has the assets it says it does.

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.

As of October, the three funds had a total of about $200 million invested with UBP's M-Invest, this person said. The de Picciotto family originally created M-Invest as a way to invest family money with Mr. Madoff and later opened it to others.

Original Article: https://www.wsj.com/articles/SB123188437723478727