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Judgment day is next in the Credit Suisse case

Bidzina Ivanishvili, the Georgian oligarch who is in a $400 million legal fight with Credit Suisse

A five-week long, $400 million lawsuit completed submissions on Friday with a lawyer claiming it was fully expected that Credit Suisse’s investment team was responsible for managing his wealthy client’s hundreds of millions of dollars in Credit Suisse Life (Bermuda) policy accounts.

The case was being heard remotely in Bermuda’s Supreme Court by Chief Justice Narinder Hargun. Witnesses have testified from multiple countries, including the Caucasus nation of Georgia and Switzerland with lawyers presenting the case and defence from London.

The dispute revolves around the arrangements made between the plaintiff, a billionaire oligarch Bidzina Ivanishvili, and his Credit Suisse relationship manager, Patrice Lescaudron, who was caught using client accounts for fraudulent activities and later jailed.

Mr Ivanishvili’s lawyer, Joe Smouha QC, said: “At no time did (Mr Ivanishvili) intend to take responsibility for managing the account and no one suggested he had such responsibility.”

Lescaudron, the rogue banker, was brought to justice after Mr Ivanishvili had $400 million in calls on his accounts because of a leveraging arrangement he said he never authorised.

The call came to light because the share value of the drug development company collapsed in the wake of failed tests for a proposed medical product.

Mr Smouha told the court that witnesses for Credit Suisse Life (Bermuda) had addressed the question of investment mandated alternatives.

They said investors were supposed to choose from a selection upon application but the choices on the application documents for Ivanishvili were unclear.

Evidence during the trial has been that clients were provided with three options when opening investment accounts with Credit Suisse Life (Bermuda): take responsibility for their own investments; have the bank’s investment team do it according to the client’s risk appetite; or through a joint arrangement between the two.

The bank investment team is restricted to investment options on an approved list, which lawyers described during the trial as a “buffet”.

The $400 million call had largely been for a position in a stock called Raptor Pharmaceuticals, which as a drug development company was considered high risk and did not appear on the approved list of investment options.

Security and compliance personnel at Credit Suisse had already flagged large positions in the stock Lescaudron had taken in other client portfolios.

There had been testimony that the relationship manager, who was responsible for marketing the insurance policies to his clients, was also responsible for putting together applications for these policies, providing each client with a “bespoke” document after a discussion with them about the options available.

The lawyer for the oligarch suggested that it was misleading there was no “selection of mandate” section in the oligarch’s application documents, but the documents did include guidelines for “execution only”.

It could lead the client to believe his portfolio was in the hands of the investment team and lead the bank’s own investment team to believe that the client was managing his own portfolio.

It would leave the way clear for Lescaudron to make his own decisions for the billionaire’s accounts.

But there was also evidence that Lescaudron received large kickbacks, largely for the sale of Raptor Pharmaceutical shares.

Mr Smouha said that Credit Suisse’s “own appointed expert” PwC, found the kickbacks exceeded $26 million.

“This is Credit Suisse’s own expert reporting to them”, he said. “It’s never been suggested … to you that Credit Suisse did not accept and believe the conclusions PwC reported to them.”

The rogue banker was accused of front running the “objectionable” equities.

“We can rely on a fact as recorded by FINMA [Swiss Financial Market Supervisory Authority] that the group [security] system there to detect unusual activity gave a front running alert.”

Mr Smouha added: “… he did take positions in Raptor before trading on client accounts – you can rely on the fact he did buy positions for clients – and Credit Suisse definitely thought he did front run those transactions – because they disciplined him.

“PwC recorded as a matter of fact they had disciplined him, so Credit Suisse thought he had done front running …”

The lawyer also said: “Raptor was not on the portfolio buffet and could not have been purchased for portfolios under discretionary management by the portfolio management team - and therefore could not be advised … there should not have been acquisition of it at all.”

Mr Smouha said the concentration of Raptor was “… such a large part of the portfolio …. that the whole cart of apples is rotten – but you have much more to support that conclusion, including the lack of a mandate across the board.”

There was a disagreement over the degree of impact the Raptor shares had on the oligarch’s portfolio and how that should in turn impact the level of damages that might be indicated or awarded in Mr Hargun’s final judgment.

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Published December 20, 2021 at 7:47 am (Updated December 20, 2021 at 7:47 am)

Judgment day is next in the Credit Suisse case

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