Adviser’s fraud a costly setback for Credit Suisse

Zurich — A Bermuda court on Tuesday ruled former Georgian prime minister Bidzina Ivanishvili and his family are due damages “substantially in excess of $500m” from Credit Suisse’s local life insurance arm in a costly setback for the bank.   

The court said that Ivanishvili and his family were due the damages as a result of a long-running fraud committed by a former Credit Suisse adviser, Pascale Lescaudron.

Credit Suisse said its life insurance subsidiary, which is being wound down, intended to “vigorously pursue” an appeal against the verdict.

The ruling is another blow for the scandal-stricken bank, still reeling from billions in losses racked up in 2021, which prompted a top management shake-up, and as it faces further probes over compliance and risk failings.

Chief justice Narinder Hargun of the supreme court of Bermuda said: “CS Life did not take action or adequate action to prevent Mr Lescaudron’s fraudulent mismanagement of the policy accounts because it was prioritising the revenues Mr Lescaudron generated for Credit Suisse over the interest of its clients.”

A client of Credit Suisse from 2005 to 2015, Ivanishvili alleged he racked up hundreds of millions in losses due to forged trades made by his Geneva-based private banker, Lescaudron, appointed to handle his investments in 2006.

Lescaudron was convicted by a Swiss court in 2018 of having forged the signatures of former clients, including Ivanishvili, over an eight-year period, and admitted he falsified trades and hid mounting losses as part of a scheme that made him tens of millions of Swiss francs.

The Bermuda case covers only a portion of the damages Ivanishvili is seeking from Credit Suisse, centring on about $400m in alleged losses incurred from fraudulent and “imprudent” trades on $755m invested in insurance policies at Credit Suisse’s Bermuda-based life insurance subsidiary, CS Life.

The Bermuda court said the extent of damages was yet to be settled but should be calculated based on the amount Ivanishvili’s policies would have generated until March 29 2022 had they been invested in a suitable medium-risk portfolio instead.

“The plaintiff's primary claim is for damages calculated as amounting to $553.86m up to 31 July 2020, being the difference between the value of the assets on the policy accounts ... and the total value ... had they been invested instead in the medium-risk portfolio identified by the plaintiffs' investment expert,” Hargun said in the verdict delivered by video conference.

A spokesperson for Ivanishvili said the ruling confirmed the Bermuda subsidiary was aware of Lescaudron’s frauds.

“It is shocking that Credit Suisse continues to refuse to offer the claimants compensation or repay the money it admits was stolen, while continuing to behave in a manner which has drawn severe criticism from the court,” he said.

Total losses yet to be repaid, spanning investments in Bermuda, Singapore and Switzerland, exceeded $800m, he said.

The spokesperson said Ivanishvili and his family would continue to quantify losses incurred in Bermuda and in Singapore, “where Credit Suisse’s Trust business is adopting the same tactics to avoid taking responsibility”.

The Swiss bank last week flagged potential losses exceeding $500m in connection with the Bermuda ruling.

Lescaudron, sentenced to five years in prison by a Swiss court in 2018, was ordered to pay damages of $130m in Switzerland in connection with the fraudulent schemes set up in relation to Ivanishvili and other clients.

Credit Suisse was recognised as a victim in the Swiss case, and has said Lescaudron operated as a lone wolf and worked to conceal his illegal activities from the bank.

The Bermuda court said Lescaudron’s fraudulent mismanagement included making investment decisions without proper authority, making sales and purchases below market value and “forging documents (and) executing investments for the purpose of obtaining unlawful commissions”.

Credit Suisse last week said it had already set aside reserves to handle the Bermuda matter, and would determine whether it needed to increase them.

Ivanishvili is also suing the bank and an affiliate, Credit Suisse Trust, in Singapore over trusts set up there. He is seeking a further $300m in the Singapore case, his spokesperson said, which is set to go on trial in September.

Reuters