09/09/2020 • Bloomberg

Credit Suisse Wins Bid to Keep Fraud Report Secret

Credit Suisse Group AG won a bid to stall the release of a report into how it failed to prevent fraud and money laundering by one of its former star bankers, Patrice Lescaudron.

A Geneva appeals court issued a suspension order late last month to temporarily keep the two-year-old report by Switzerland’s financial regulator under wraps, the cantonal prosecutor’s office said, declining to give more information.

The move comes as the death of Lescaudron, who killed himself in July, refocuses the spotlight on a criminal probe against Credit Suisse. The order gives judges time to decide whether Geneva prosecutor Yves Bertossa — who’s investigating whether the lender is criminally responsible for failing to stop Lescaudron — can share the report with the rogue banker’s Russian and Georgian clients.

It’s the latest round in a legal battle that’s played out since Lescaudron was arrested in 2015 and subsequently convicted in 2018. His customers, some of whom lost tens of millions of Swiss francs, have argued that the bank should also bear some responsibility for his fraud and have been pushing for access to Finma’s 270-plus-page report.

While it’s known that Finma scolded the bank in 2018 for praising Lescaudron when it should’ve been taken acition against him, a press release at the time merely summarized the report’s conclusion.

“Instead of disciplining the client manager promptly and proportionately, the bank rewarded him with high payments and positive employee assessments,” Finma said in the release, calling the oversight of Lescaudron “inadequate.”

Lone Wolf

If Credit Suisse is ultimately found guilty under Swiss corporate criminal statutes, it risks a penalty of 5 million Swiss francs ($5.4 million). A conviction could also enable clients to pursue compensation for their losses as part of the criminal proceedings.

Credit Suisse has consistently countered that Lescaudron was a lone wolf and his former boss testified at his trial that he simply didn’t know how the bank’s compliance protocols didn’t catch his subterfuge.

The bank said in a statement that it “can only reiterate that Finma’s investigation did not reveal any facts that support the criminal complaints against Credit Suisse.” A spokesman declined to comment on the suspension order.

Lawyers and spokespeople for three of the clients declined to comment.

Lescaudron’s suicide ended a tumultuous decade for the once high-flying banker. He had joined the Swiss company in 2004 from outside the banking world. But as a Russian speaker, quickly found himself managing more than a billion dollars for some of the bank’s biggest clients in the region.

Faking Trades

Details of one of the biggest financial crimes in Swiss history emerged at his trial. In around 2008, he began to run into heavy losses on behalf of his clients. But rather than telling colleagues, he doubled down, forging signatures and faking trades to try to buy time to recover from those losses. The scheme went undetected for more than seven years until a massive bet on a single drug stock in the U.S. in 2015 went badly wrong and exposed his fraud.

While the latest legal wrangling means Lescaudron’s clients can’t see the report, the bank lost a separate appeal at the Swiss Supreme Court in June seeking to prevent prosecutors from accessing it. Business secrecy “cannot take precedence over the search for the truth,” the top court ruled.

That means Bertossa can continue to use the document for his investigation. He had proposed in August to allow the clients a right to read the report at the Geneva prosecutor’s office, without receiving physical copies.

The proposal was designed as a concession to the bank but Credit Suisse filed to suspend his plan.

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