Luxalpha / Madoff Fraud : Luxembourg Court rejects liquidators’ request for definition of a « suspect period »

By decision of 16 June 2016, Luxembourg Court (Tribunal d’Arrondissement de et à Luxembourg) has provided further explanation as to the liquidation regime of the LUXALPHA SICAV (the “SICAV”) linked to the Madoff fraud.

 Brief summary of the liquidation procedure of the SICAV

 The SICAV was put into liquidation by Luxembourg Court decision of 2 April 2009. The Court’s decision was based on the decision of the Luxembourg prudential authority (CSSF) to remove the SICAV from the official list of Luxembourg investment funds as of 3 February 2009.

 This decision was motivated by the fact that UBS Luxemburg SA had signed, on 5 February 2005, a sub-custodian agreement with the company Bernard L. MADOFF INVESTMENT SECURITIES LLC (the “Sub-Custodian”). After the liquidation of the Sub-Custodian, the board of director of the SICAV decided, on 15 December 2008, to suspend the Net Asset Value (“NAV”), the subscription, the conversion and the redemption of the shares of the SICAV. The decision was motivated by the fact that the assets held with the Sub-Custodian were blocked.

 Indeed, the public announcement of the Madoff fraud was published on 11 December 2008. The next day, the board of directors of the SICAV tried to obtain the transfer of the assets held with the Sub-Custodian, but without success. Further to the public announcement, the SICAV received numerous redemption requests of investors.

 The liquidators’ claim to repeal redemption requests made during  the “suspect period”

 Certain investors argued that, since the Madoff system was based on a fraud, it should be necessary to allow the liquidators of the SICAV to issue claims in order to consider all redemptions operated during the “suspect period” (which shall be set by Court to several months before the liquidation decision) as null and void. If such claim succeeded, investors whose redemption request were met would potentially have to reimburse the received funds.

 Luxembourg Court dismissed however the liquidators’ request. Indeed, according the Luxembourg Court, the Luxembourg Law of 17 December 2010 relating to undertakings for collective investment only allows Court to apply certain rules applicable to insolvency proceedings. The determination by Court of a “suspect period” is not part of these rules.

 (To be noted: this is a first instance decision potentially subject to appeal).