Ethics and governance in the European Financial centers

The Luxembourg regulator yesterday communicated on the Madoff affair once more in a very bad way.

Nothing about the influence of professionals that opened the drift.

But inaccurate statements at the end:

Finally, as regards the three Luxembourg investment companies affected by the Madoff case and currently in judicial liquidation (the "Sicav", cf. CSSF press releases of 15 April 2009 and of 13 May 2009), the CSSF wishes to recall and specify the following points:

• During an authorisation process, the CSSF approves a UCI's incorporation documents, i.e.: the prospectus and the articles of incorporation or the management regulations of the UCI in question. In accordance with the law of 20 December 2002 relating to undertakings for collective investment, a UCI's prospectus has to contain all the necessary information for an investor to reach a properly informed decision on the proposed investment. Internal documents which merely govern the practical terms and conditions between professionals (such as operating memoranda) have to comply with the contents of the approved and published prospectus and cannot deviate therefrom. These internal documents are not submitted to the CSSF.
• The documents submitted to the CSSF in the framework of the authorisation procedure for each of the three Sicav,1 on the basis of which they were registered on the official list of UCIs, included no reference neither to the identity of BMIS nor, more importantly, to the multiplicity of functions carried on de facto by one entity. Between the launch of the various Sicav and the breakout of the Madoff affair in December 2008, the CSSF was never informed in a transparent manner, by the professionals involved, of the structure actually set in place nor of the role played in practice by BMIS at different levels of this structure.

Let's have a look on the original prospectus page 7:

( Click to enlarge)

Can CSSF seriously state it was not aware of the multiplicity of functions carried on de facto by one entity as it was not de facto but actually de jure?

Who was Portfolio Manager, Custodian and main Paying agent, Distributor ? The same entity located at the same address.

Once more stakeholders, and especially investors, are considered as idiots in this secrecy jurisdiction that is unable to make amend.