Payout to Gulf clients hit by Madoff fraud

Gulf clients of Union Bancaire Privee bank will recoup some of their $100m lost by the fraudster.

Gulf clients of Union Bancaire Privee (UBP), who lost more than US$100 million in investments related to the fraudster Bernard Madoff, will be financially compensated

Gulf clients of Union Bancaire Privee (UBP), who lost more than US$100 million (Dh367.3m) in investments related to the fraudster Bernard Madoff, will be financially compensated, representatives from the bank's Dubai office said yesterday. UBP said it would reimburse up to 50 per cent of its clients' investments that were placed in Madoff-related entities. Gulf clients would also benefit from the pay-back, said Paul Denton, the chief operating officer of UBP in Dubai.

This follows last week's announcement in which the bank, based in Switzerland, said it would compensate its global clientele, who had lost a total of $700m in the fraud. The compensation will be paid out over a period of five years, and will include a 2 per cent interest fee on the amount. "The compensation scheme will be the same for Gulf investors," said Mr Denton. "We want the message to be clear to our clients specifically in the region."

Some clients had 1 per cent to 2 per cent of their portfolios affected by the Madoff fraud while others felt a greater impact, said Mr Denton. "Some clients were more affected because of fund of fund structures; the impact is spread out," he said. Mr Denton declined to say how many Gulf investors were affected by the fraud. While analysts believe the Madoff scandal will not continue to dampen regional investor sentiment in alternative investments, the fraud case sits "within the mosaic of scandals and bear markets that has everyone concerned about investing in general", said Eric Swats, a partner at Rasmala Investments.

"Redemptions continue out of hedge funds, but that said, there are some green shoots indicating that they might return to their normal function or provide returns independent of movements in equity markets," he said. "Many hedge funds are giving positive returns despite the continued decline in equity markets; this will become clearer by the second quarter." Madoff, a US investment manager, recently confessed to a $68bn fraud in which he accepted money from investors, including institutions such as UBP, for investment; the bulk of the funds were used to support a Ponzi scheme, which collapsed last year. Madoff was sent to jail last week after pleading guilty and will be sentenced in June. [e-mail]