Marc Henzelin hurries us down the staircase of Lalive, his Geneva law firm. “Now I’ll show you the war room,” says the financial lawyer, opening the door to a conference room. Inside are two enormous wall charts, each filled with diagrams of financial transactions. The arrows point in all directions. Sometimes their endpoint is a Swiss investment company, sometimes a broker in Dubai. In the middle of the diagram is one name: Fabrice Lecompte*, a former banker at Credit Suisse in Geneva.
The charts are the result of painstaking research by Mr. Henzelin and his team. He wants to get to the bottom of what Mr. Lecompte did with his client’s money. That client is Bidzina Ivanishvili, a billionaire businessman and former prime minister of Georgia. The case is probably the largest investment scandals in recent Swiss history. The Geneva public prosecutor’s office estimates the damage to be “at least” 100 million Swiss francs (around $103 million).
In addition to Mr. Ivanishvili, 2 Russian businessmen have also filed criminal complaints, claiming breach of trust and mismanagement, and Credit Suisse too has lodged a complaint. The main suspect, Mr. Lecompte, has been in custody for weeks now, but the bank may also soon face a claim for damages.
“The adviser transferred at least 100 million francs to other customers’ portfolios. These transactions weren't authorized and my client had no knowledge of them. ”
Much remains unknown. But the following is clear: Mr. Lecompte, a Frenchman, arrived at Credit Suisse from the cosmetic company Yves Rocher in 2005. At the bank, he was responsible for very wealthy clients from the former Soviet republics, for whom Geneva was the preferred banking location.
In 2006, the financial adviser allegedly began to add shares in the real estate developer Meinl European Land to two of his clients’ portfolios. “He created subsidiary accounts without my clients’ knowledge,” said lawyer Giorgio Campa. “So my clients had no idea about these purchases,” he added. As the financial crisis bit, the Meinl stock crashed. But instead of admitting the losses, Mr. Lecompte is believed to covered them up, using money from accounts belonging to Mr. Ivanishvili, the Georgian billionaire.
“The adviser transferred at least 100 million francs to other customers’ portfolios,” said Mr. Henzelin, the lawyer for Mr. Ivanishvili. “These transactions weren’t authorized and my client had no knowledge of them.” To hide the transactions, Mr. Lecompte allegedly began to alter his clients’ bank statements.
Mr. Ivanishvili has made further accusations against the broker that haven’t been proven so far. He said Mr. Lecompte used so-called “churning,” a process of carrying out trades for an investment account to generate commissions. “The adviser kept buying and selling the investments in the account,” said Mr. Henzelin, the lawyer. He is alleged to have deliberately portioned securities purchases into several small tranches because the fee system charged higher commissions for smaller transactions. Mr. Lecompte allegedly generated some 150 million francs in fees through constantly churning the portfolio of his wealthy client.
Mr. Henzelin said the portfolio consisted almost entirely of illiquid and “exotic” investments as Mr. Lecompte purchased structured products and derivatives instead of normal shares. According to sources familiar with the case, he allegedly created some of these structured products himself to place them in his client’s portfolio.
That has led to the suspicion that Mr. Lecompte didn’t just try to hide losses but also tried to enrich himself at the expense of his clients. “So far there is absolutely no proof of that,” said Simon Ntah, the banker’s lawyer, from the firm Ochsner & Associates.
Insiders also said Mr. Lecompte used his clients’ assets as collateral to raise Lombard credit to conduct the transactions.
Mr. Lecompte finally got into trouble through an investment in Raptor Pharmaceuticals, a small U.S. biotech company. Last September, poor drug trial results led to a collapse in its stock and Mr. Lecompte’s clients had to meet margin calls and pay millions because he had financed the investments in Raptor with credit. The Raptor shares used as collateral were suddenly worth far less so they had to inject fresh money. Their lawyers said they new nothing of the investment. Mr. Lecompte’s lawyer denied that, saying the investments couldn’t have been made without their knowledge.
But there are unanswered questions. Handelsblatt has seen emails between Mr. Lecompte and Mr. Ivanishvili’s personal financial adviser, discussing Raptor in 2013 and 2014. These partly went via Gmail and Hotmail accounts, rather than the Credit Suisse server, in breach of compliance rules. That fact alone should have had sent the client’s alarm bells ringing.
According to documents from the U.S. Securities and Exchange Commission, by May 2014, Mr. Ivanishvili directly or indirectly owned 22.29 percent of Raptor. But his lawyer insisted that the Georgian had no idea that his investment in Raptor was so big. They said Mr. Lecompte bought the stake via derivatives and structured instruments in an apparent attempt to generate commissions for himself.
“The case here isn’t black or white,” said Mr. Lecompte’s lawyer. It was almost impossible to believe, he said, that Mr. Ivanishvili did not know what was going on in his portfolio. Many questions remain unanswered: what did the Georgian billionaire know? Did Mr. Lecompte get rich off his clients’ wealth?
Plus one more question: what did Credit Suisse know? In the great Swiss tradition, the bank is tight-lipped. “This is an isolated case. The bank has zero tolerance for wrongdoing,” said a spokesman.
But all of the lawyers involved are deeply skeptical that Mr. Lecompte’s transactions could have gone unnoticed at the bank. “In those kinds of complex transactions, a lot of other departments were involved, such as the credit department or the foreign currencies desk or the one for options” said Mr. Henzelin, the lawyer for the former Georgian politician. Either they had their eyes closed, he added, or Mr. Lecompte had help on the inside.
But others familiar with the case said there was no proof that bank insiders were helping Mr. Lecompte. They said he carefully avoided going over financial limits which might have flagged his actions to his supervisors. And in general, they said, advisers of former Soviet clients tended to keep the bank’s Zurich head office at arm’s length. “Lecompte always kept his clients insulated,” said one insider.
Credit Suisse has already taken action. According to sources, Mr. Lecompte’s direct superior has been fired, one of a handful of employees to have left the bank over the case. FINMA – the Swiss financial supervisory authority – is also taking an interest in the case, asking how an adviser could, for years, have played fast and loose with clients’ money. The news agency Bloomberg has reported that Mr. Ivanishvili has filed suit against the bank for money laundering.
The case may drag on for years, both in the criminal and the civil courts. “Once we get access to the results of the criminal investigation, we’ll launch a claim for damages against Credit Suisse so that my client gets his money back,” said Mr. Henzelin. Credit Suisse has already begun making provisions for possible compensation payments. They are said to have set aside some 250 million Swiss francs.
Holger Alich is Handelblatt’s Switzerland correspondent, covering the financial industry. To contact the author: email@example.com.