By Peggy Hollinger in Paris and Joanna Chung in New York
Published: January 13 2009 02:00 | Last updated: January 13 2009 02:00
European rules on investment funds need an overhaul in the wake of the $50bn (£33.7bn) alleged fraud by Bernard Madoff to restore investor confidence, the French finance minister urged last night.
Christine Lagarde warned that the Madoff affair could weaken Europe's efforts to create a safe environment for cross-border investment, as it was revealed how member states had interpreted directives differently.
The warning, a thinly disguised attack on Luxembourg regulators, was made in a letter sent last night to Charlie McCreevy, Europe's internal market commissioner, and copied to Jean-Claude Juncker, prime minister of the Grandy Duchy.
In New York a US judge has ruled Mr Madoff can stay out of jail while awaiting trial. US magistrate Judge Ronald Ellis denied prosecutors' requests to jail him pending trial because he posted packages containing more than $1m in jewellery and other assets to friends and family members.
Mr Madoff will remain in his Manhattan apartment under house arrest and electronic monitoring. The judge also ordered Mr Madoff to compile an inventory of all "valuable portable items" in his home. A security company is to check the inventory and search all outgoing physical mail to ensure that no property is transferred.
Without naming Luxembourg, Ms Lagarde alludes to "certain" member states that imposed only limited responsibilities on custodian banks to ensure that assets entrusted to them existed.
Under Luxembourg law, UBS, the Swiss bank that ran two so-called "feeder" funds registered in the duchy that invested with Mr Madoff, was allowed to delegate custodianship in certain cases to a third party. The two funds are believed to have had assets of about €2bn (£1.8bn) invested with Mr Madoff.
Colette Neuville, the defender of shareholder rights in France, warned in an interview with the Financial Times that action was needed to protect the free movement of capital across borders.
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