UBS is being sued by a trustee given the job of recovering assets stolen by convicted US fraudster Bernard Madoff, demanding a sum of $2 billion.

UBS is being sued by a trustee given the job of recovering assets stolen by convicted US fraudster Bernard Madoff, demanding a sum of $2 billion, media reports said.

The lawsuit, which has been lodged by Irving Picard in New York, alleges 23 counts of fraud and misconduct. Picard reportedly said that UBS, the banking and wealth management giant, "lent an aura of legitimacy" to the Madoff funds Luxalpha SICAV and Groupement Financier by serving as their sponsor, custodian and administrator.

UBS dismissed the claims.

"As previously stated, the Luxalpha fund was created at the explicit request of wealthy clients who requested a tailor-made fund to enable them to continue investing their assets with Madoff. These clients were represented by sophisticated financial institutions being fully aware of the nature of the investments," a statement from UBS said.

"These investors, their advisors and Luxemburg's regulator CSSF were informed about the fact that the sole purpose of Luxalpha was to enable the funds to be invested with Madoff. The fund documentation made it very clear that UBS (Luxembourg) SA was not expected to be responsible for the safekeeping of the assets. The fund documentation contained an explicit waiver to that effect. UBS does not have responsibility to these shareholders for the unfortunate results of the Madoff scandal," it said.

UBS concluded: "Therefore, the allegations of wrongdoing in the press release are completely unfounded and without merit. We have not been served with the complaint yet. We regret that Trustee filed this unwarranted complaint and will take all appropriate steps to demonstrate that the allegations are false."

The suit highlights how the $65 billion Ponzi scheme fraud of Madoff, which was the biggest crime to have come to light amid the credit crisis, continues to reverberate through the financial system. Already, it has provoked soul searching among wealth managers about the extent, or possible lack, of due diligence checks that were done on his funds in the years leading up to his conviction.

A number of private banks and other investment institutions were hit by the fraud. In May, it was reported that a total of 20 European banks had agreed to reimburse non-US investors for $15.5 billion of losses caused by Madoff but some Swiss lenders have yet to do so.

Among other details of the latest Madoff-related legal action, UBS, Picard claims, had indications of fraud but avoided legal responsibility through indemnity agreements and ceded the responsibility for valuing them to Madoff.

"Madoff's scheme could not have been accomplished unless UBS had agreed not only to look the other way, but also to pretend that they were truly ensuring the existence of assets and trades when in fact they were not and never did," Picard's lawyer, David Sheehan, was quoted as saying by the Financial Times.