Sigrún Davíðsdóttir's Icelog

Archive for May, 2012

An Irish rogues’ gallery

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On my visit to Dublin last week, I got to visit Tithe an Oireachtais, the Irish Parliament. A wonderful building, a beautiful blend of old and new. The same goes for the paintings on the walls, former presidents and prime ministers, some still alive and kicking, others gone to other pastures.

The paintings of previous Taoiseach, prime ministers, hang along an oval gallery, a passage into the House of Represantatives. Just recently, the Mahon report, 14 years in the making, was published. It showed quite clearly that in the 80s and the 90s, the period covered by the report, Ahern was receiving corrupt payment. Other cases show that Ahern didn’t really improve later in life.

But what is Ahern doing now? Like so many previous PMs – Tony Blair being a prime example – Ahern knows that in distant countries being a bit of a rogue does much less harm than the “ex-PM” title does good. So Bertie Ahern is now opening doors in China for Irish business men.

But Ahern is still hanging on the wall in the Irish Parliament – not being able to explain how you finance buying a flat is just nothing – and there is also the grand painting of Charlie Haughey. These paintings are a daily reminder to the Irish MPs that being a bit of a rogue doesn’t seem to do any harm in Irish politics. Brown envelopes? Never mind. Is that the message the Irish want to spread around?

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Written by Sigrún Davídsdóttir

May 30th, 2012 at 9:28 pm

Posted in Iceland

The commercial motives in the Kaupthing loans to the Tchenguiz brothers

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This is really the question Lord Justice Thomas and Justice Silber have to answer when they rule on the judicial review granted into the arrest of Vincent and Robert Tchenguiz, house searches and raids conducted by the Serious Fraud Office. The brothers are testing separate reviews – their cases are different – and the answer won’t necessarily be the same for both of them.

In the UK media much has been made of the SFO’s blunders in its investigation of the brothers’ connection with Kaupthing, which also touches key Kaupthing characters like the bank’s chairman Sigurdur Einarsson. The SFO has already acknowledged certain mistakes and excused to Vincent – the part concerning Robert hasn’t been touched upon. This hasn’t sheltered the SFO from being taunted by the media and rumours swirl that the investigation will be called off.

James Eadie QC, representing the SFO, introduced his skeleton last week by underlining the complex structure of the Robert Tchenguiz companies. There was R20, a counsel to the Tchenguiz Discretionary Trust and yet also somehow owned by the TDT and then there are companies administrating the TDT, also advised by R20. The Tchenguiz Family Trust, owned by Vincent, is a separate entity and yet somehow connected as well. When Kaupthing collapsed, Robert owed €2bn to Kaupthing – a staggering 25% of Kaupthing’s loan book had been lent to Robert.

Eadie pointed out that three fundamentals are a necessary prerequisite to normal banking:

1)    Loan-to-value ratio, ie the collaterals have to cover the lending

2)    Internal processes for proper lending; the lending has to be properly dealt with

3)    No lending to insolvent companies

In Kaupthing, Eadie claimed, all these three fundamentals were broken. Robert got an unsecured loan of €155m from Kaupthing. The bank put aside normal processes used in relation to other borrowers. Eadie said that Oscatello was insolvent in December 2007, the bank knew it and still it kept pouring loans into this Robert Tchenguiz company.

In addition, Eadie mentioned that Tchenguiz had removed valuable collaterals and replaced them with assets worth a whole lot less. – Incidentally, there are examples from other favoured clients of the Icelandic banks who got away with this, meaning that when certain companies went bust, the creditors got the junk and the favoured clients have kept their valuable assets.

Justice Thomas didn’t much want to accept that this was a complicated case under investigation. It could very well be seen as a case where a bank thought it was in its interest to keep lending, hoping for better times to come, because a bankruptcy would be too heavy for the bank to bear (though he didn’t mention that a bank shouldn’t get into such a situation in the first place). The key question was, according to Justice Thomas, whether the decisions were commercially legitimate and sound.

Eadie accepted Justice Thomas’ explication but stuck to his own version, pointing out that it was in no way in the bank’s interest to keep on lending, over the many months after December 2007, when nothing indicated that Oscatello could be saved – and when the normal fundamentals of banking were so completely set aside.

Eadie mentioned briefly that Kaupthing managers also had investments with Robert Tchenguiz. This point merits some attention. When the managers were dealing with Robert Tchenguiz investments they weren’t only dealing with a client with whom the bank had co-invested. They were dealing with a client with whom they personally had invested.

As the SIC report shows, the managers took out loans with Kaupthing, invested in at least one investment company, Kaupthing Capital Partners II. This company invested in Somerfield and Laurel, together with Tchenguiz, in Jane Norman, Mosaic Fashion and Booker with Baugur/Jon Asgeir Johannesson and in companies with Agust og Lydur Gudmundsson and Olafur Olafsson, respectively the bank’s largest and second largest shareholders.

As to how the key employees saw their participation in these investments there is this very illuminating email in the SIC report (vol. 3, p81), dated December 12 2006, from Kaupthing Luxembourg manager Magnus Gudmundsson and Kaupthing Singer & Friedlander manager Armann Thorvaldsson to Sigurdur (Siggi) Einarsson and Kaupthing’s CEO Hreidar Mar Sigurdsson:

Hi Siggi and Hreidar

Since Armann has discussed this with you we (the association of loyal CEOs) have talked about it between us and came to the following conclusion about our shares in the bank:

1. We, each of us separately, set up a SPV where we put all of our shares and loans.

2. We take an additional loan up to 90% LTV which means we will immediately take out some cash.

3. We get permission to lend more if the KB shares go up to what amounts to 90% LTV up to course 1000. Meaning that if the share price goes above 1000 we won’t be able to borrow more.

4. The bank makes no margin calls against us and would shoulder any theoretical losses, if they occurred.

We are interested in using some of this money to put into Kaupthing Capital Partners.

Best regards,

Magnus and Armann

This explains how the managers of the bank saw their own personal loans from the bank – no risk for them, all risk on the bank – and this money were partly used to invest, ‘risk-free,’ with the bank’s major clients – and in some cases, the bank’s major shareholders. This raises the question to whom these and other Kaupthing managers were loyal and if Eadie’s definition of normal banking fundamentals were entirely followed here.

The loans to Oscatello – one of the underlying reasons for the SFO investigation – follow the abnormal banking practices in Kaupthing. Looking at only one loan, one might think that yes, Kaupthing was hoping the tide would turn as it poured money into Oscatello – but there are certainly are questionable sides to this lending. Sides, which characterised Kaupthing’s relationship to all its favoured clients.

Another aspect of this interesting relationship comes to light when the favoured clients bought big stakes. In February 2007 much was made of Exista’s invasion into the Finnish insurance market as it starting buying into Sampo, where it ended up owning 20%. But there was a prelude to Exista’s Sampo acquisition, as explained in the SIC report (vol. 2, p. 175):

In March 2006 Kaupthing consented to a loan agreement to finance acquisition of just over 10% in the Finnish insurance company Sampo. The buyer was Exafin BV. It’s beneficial owner, behind a series of some companies, was the Tchenguiz Family Trust.* According to the agreement the American bank Citibank lent to buy shares in Sampo. Half of Exafin’s total capital contribution of EUR100m came from Tchenguiz Family Trust but the other half came from Kaupthing, through its subsidiary Isis, as participation lending. In addition, Kaupthing gave Citibank a mixture of options and a guarantee, which obliged Kaupthing to place a collateral if the value of the shares fell below a certain level. This guarantee had to be met at least once because in July 2006, after a fall in Sampo’s shares, Kaupthing agreed to an addition to the guarantee, which it then placed with Citibank. By then, the total guarantee placed by Kaupthing was EUR360m. In February 2007 Exista bought Exafin BV from companies owned by the Tchenguiz Family Trust. At the same time, the loan from Isis was paid back but the other part of the loan remained unchanged. This meant that Citibank kept financing the shares but it was still Kaupthing’s obligation to pay out the guarantees in case Citibank made a margin call due to a falling share price. To lessen the risk on Kaupthing, Exista placed a guarantee for the margin calls. In this way, Kaupthing could turn to Exista for the guarantee it had placed. 

As can be seen from this, Robert Tchenguiz had, quite extraordinarily bought Sampo shares before Exista started buying them. Quite handily, Exista just bought the Tchenguiz company which owned the shares. To complicate things further, it was also around this time that Robert Tchenguiz took place on the Exista board. And luckily for the instigators of these dealings it was Kaupthing – and not the clients – that, again, shouldered the risk.

The SFO picked a tiny little piece to investigate out of the whole Kaupthing story. But even this tiny bit raises some serious questions. The judicial review isn’t about the guilt of Vincent and Robert Tchenguiz but only if the SFO supplied the correct information when it got the warrant from a judge before the Tchenguiz brothers and seven others were arrested in March 2011 and their private premises and offices searched.

James Eadie kept emphasising that it was important to look at the whole picture, not just the tiny bits the Tchenguiz’ lawyers were complaining about to undermine SFO’s whole rationale. It will be interesting to see what conclusion the judges reach – and if the SFO sticks to its investigation or not.

*James Eadie presented the Tchenguiz Family Trust as belonging to Vincent Tchenguiz. According to the SIC report this company was however involved, on part of Robert, in the Sampo deal. This may indicate that the dividing lines between the brothers’ assets are more fluid than they present them – or that they have changed since this happened. Yet another possibility is that the SIC report got it wrong but it’s right to keep in mind that the SIC had access to Kaupthing documentation regarding these transactions. 

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Written by Sigrún Davídsdóttir

May 29th, 2012 at 10:02 pm

Posted in Iceland

Ireland seen from Iceland – and Greece

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I’m in Dublin again – was here in December 2010 just as the effect of Ireland’s bank bailout had forced Ireland to be bailed out by the EU and the IMF. And the UK, which has staunchly refused to be drawn into the eurozone debacle, did add to the bailout package.

An organisation, Claiming Our Future, is organising an event tomorrow, on “Reinventing Our Democracy” – as the title says, to discuss these issues and the way forward for Ireland. The same attempts have been going on Iceland, in particular related to writing a new constitution, a process that’s still not finished.

The spirit here seems rather bleak. Not much optimism, as often is when unemployment is high – 14% here at the moment – and not much change in sight. This is a country where privately held debt – accumulated by bad banking and unsound speculation – was allowed to migrate over to the public sector.

But how about writing down this debt? The leading political parties aren’t too keen on it. Isn’t that just for countries who in reality are bankrupt? For countries in a really horrid situation like Greece?

Maybe – but why look at it so negatively? Is Ireland safe and sound over the worst? No, I don’t think so. There are rumours of a second unavoidable bailout looming. The pain has increased when the unsustainable situation isn’t solved but only mended. Then things drag on, the situation again gets unsustainable and yet another bailout is negotiated. It is very costly not to solve the real problems.

Greece has already restructured its private debt. Why shouldn’t Ireland consider doing the same?

*Last night, I was on a panel at a political chat show here, Tonight with Vincent Browne. You can watch it here – in the first bit the focus is on Iceland and Ireland. Then the discussion moved to EU.

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Written by Sigrún Davídsdóttir

May 25th, 2012 at 6:14 pm

Posted in Iceland

Landsbanki, Luxembourg

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There has been a lively discussion on Icelog regarding Landsbanki, Luxembourg. For all of you interested in that matter, I strongly advise you to read it. I will take a better look at it myself in the coming days but here are a few issues touched upon:

Regarding Landsbanki operations:

The valuation that Landsbanki made of the properties – and then sudden drop in value just before the bank failed, is commented on by Sharon, a real estate agent in this area in France where many of the houses are.

Money was taken from accounts to buy Landsbanki bonds, even though the clients had it in writing that no investments were to be made without their approval.

Information of risk sent to clients after the loan was issued.

Serious lack of information and documentation, in addition to the questionable valuation, when the bank claimed the “security ratio” (the ratio between the loan and the collateral) had fallen and the clients was obliged to pay in order to address the shortfall.

Promises were made to make money available to clients but it seems that no money was forthcoming from Landsbanki – at least for some clients – already from July.

After the administrator took over:

In spite of investigations by the failed banks’ Icelandic resolution committees, ia Landsbanki’s ResCom, into the banks, the administrator in Luxembourg seems not to have undertaken any investigation, or at least that hasn’t been made known to clients.

Information from administrator to former clients on what they supposedly owe the bank does in many cases differ greatly from what the clients themselves see as possible but they don’t seem to be getting any explanation as to why there is this great difference.

These comments show that both regarding Landsbanki’s own operations and then the operation of the administrator there are serious issues to be addressed. There seems good reasons to question some legal aspects of the loans themselves – and then the administrator seems to have done a questionable job of dealing with the equity release loans. All this has been to a great distress for the clients involved.

For further information, here is an earlier Icelog on the nature of the equity release loans and Luxembourg.

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Written by Sigrún Davídsdóttir

May 25th, 2012 at 5:44 pm

Posted in Iceland

Did Kaupthing managers really stay at Robert Tchenguiz house?

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No, they didn’t. The story that Kaupthing managers stayed at Robert Tchenguiz’ house has done the rounds in both the UK and the Icelandic media. It sprung from a remark James Eadie QC, SFO’s barrister, made at the Wednesday hearing in the judicial review of Robert and his brother, Vincent. I certainly understood Eadie’s words to mean that Kaupthing managers had been living at Robert Tchenguiz house. However, I didn’t make use of this remark since I couldn’t quite see why the managers should have stayed with Robert – they had pretty nice houses themselves – and I wanted some further proof of this bizarre choice of abode.

Thursday morning, this story was on print the Telegraph. First thing at the hearing Thursday morning Eadie brought this article to the attention of  Lord Justice Thomas, who presides over the case, saying he had no intention to create a misunderstanding. He hadn’t meant that the Kaupthing execs had literally been staying at Robert Tchenguiz’ home, only that they lived in the vicinity of Tchenguiz, in Mayfair. Lord Macdonald, representing Robert, said that he and Eadie had found it entirely plausible that the execs had preferred Mayfair to Reykjavik.

This little incident and exchange of comments made the Lord Justice chuckle, adding that he had no intention of investigating this little matter any further.

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Written by Sigrún Davídsdóttir

May 25th, 2012 at 12:33 am

Posted in Iceland

SFO and the Tcenguiz judicial review: day 1

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Today, the defence teams of Vincent and Robert Tchenguiz spoke in Court, in order to demonstrate that the Serious Fraud Office had been wholly wrong in its actions against the two brothers. At the end of the day, Justice Sir John Thomas summed up the difference between the cases of the two brothers: Vincent Tchenguiz claims there never was a case against him; Robert Tchenguiz claims that the SFO’s portrayal of him as someone who wouldn’t respond honestly to an order to hand over documents, necessitating an arrest and house searches, was utterly wrong and unfounded.

According to the skeleton of the Vincent Tchenguiz defence team he seeks a mandatory order quashing the search warrant; a declaration that the entries into his premises, searches and seizures were unlawful; a mandatory order to remove all those at the SFO who were involved in the action or dealt with material from it; and lastly but not least: an assessment of dammages and indemnity costs.

According to the skeleton of Robert Tchenguiz defence team Robert claims that his arrest was unlawful, bail was not necessary or proportionate, search warrants were unlawfully applied for and issued and there was failure to give any or adequate reasons, which renders the warrants unlawful. His defence points out that the Director of the SFO has now conceded that search warrants were unlawfully applied for and issued.

The brothers had made it known to certain media that much interesting stuff would be aired in court today. That was hardly the case. The weirdest news have been leaks in the media prior to the trial: first, in the Daily Telegraph, that the SFO had offered Robert to close the case against a £50m donation to a charity. The other, in FT today, that the SFO had contemplated to use undercover agents at Annabel’s, the nightclub frequented by the brothers. Both stories indicate that SFO was desperate and clueless. In order to understand these rather unflattering stories, it’s interesting to reflect on whom these leaks benefit, the media they appear in and the former reporting of these papers on the brothers.

That said, the SFO has things to answer for on mistakes made. In Court today, a note was filed on behalf of the Director of the SFO, referring to Vincent’s claim and certain mistakes made. In the note the SFO’s ongoing investigation of Robert is mentioned “and the nature of the relationship between RT and various senior executives at Kaupthing.”

For those familiar with this relationship it raises many questions. Hopefully, the SFO will be able to continue its investigation and find the answers to these questions. Whether Vincent just got unfortunately involved in this relationship, because he put up a collateral for his brother in Robert’s hour or need, or if there is a further untold story about Vincent and Kaupthing remains to be seen. The fact that the SFO chose to investigate them both, and not just Robert, indicates a certain suspicion, founded or not.

Robert wasn’t seen in court today. Vincent sat with Lisa, his sister, and some employees, and listened intently all day. The case continues tomorrow.

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Written by Sigrún Davídsdóttir

May 22nd, 2012 at 5:37 pm

Posted in Iceland

SFO and the Tchenguiz brothers

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In an FT front page article today, the story is of an SFO lawyer who in a report warned the SFO not to pursue a case against the Tchenguiz brothers. One of the reasons: “It was an Icelandic bank, with many of the suspects in the case being Icelandic nationals, allegedly committing fraud against Icelandic institutions, taxpayers and authorities,” according to a person who has seen the report.

Correct, Kaupthing was an Icelandic bank – but it had a subsidiary here in the UK, these loans were made here and in Luxembourg, not in Iceland. This happened on the SFO’s turf, with clients based here and most of the money spent here. Surely, a clear case for the SFO to investigate. Otherwise, there wouldn’t be anyone to investigate these matters. Otherwise, the UK is a free-for-all foreign financiers to get involved with UK citizens with good offers.

Most of the cases pursued by the SFO are against some previously unknown crooks who have managed to swindle lots of money. It’s not every day that the SFO lawyers meet someone like Lord Goldsmith in court and high-flyers like the Tchenguiz brothers. This might test SFO’s confidence but it hardly tests the legitimacy of pursuing a case involving a UK subsidiary of a foreign company.

At the heart of the case are loans that not everyone could get and the relationship Kaupthing had with its favoured clients and – in the case of Robert Tchenguiz who sat on the board of Exista – the largest shareholder of the bank.

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Written by Sigrún Davídsdóttir

May 22nd, 2012 at 8:30 am

Posted in Iceland

A reputation buy-back for £50m from the SFO?

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According to The Daily Telegraph, Kaupthing-clients Robert and Vincent Tchenguiz were at some point negotiating with the Serious Fraud Office if they could get out of the SFO investigating claw by paying £50m to charity. Unsurprisingly, the SFO isn’t commenting nor are the Tchenguiz brothers.

According to the Telegraph: “On the eve of Robert and his brother Vincent Tchenguiz’s legal challenge against their 2011 arrests and searches of their properties, details of secret negotiations between the brothers and the SFO have emerged. It is alleged the SFO offered to announce it had dropped its investigation if Robert donated £50m to charity. The negotiations broke down after the two sides could not agree on details including the whether payments would remain confidential.”

It’s not unlikely that the brothers would gladly pay their way out of the investigation. As to the secrecy, it’s likely that it would be in their interest to keep any such deal secret. If the creditors think the brothers have 50m handy to pay the SFO the creditors might have a thing or two to say.

But is it likely that the SFO was really willing to discuss this? Maybe I’m just being naïve but it beggars belief they really did accept to discuss it. True, the SFO is in deep trouble with the house searches and arresting of Vincent Tchenguiz. However, they are pressing ahead and seem interested in pursuing the case, in spite of the brothers’ judicial review coming up this Tuesday.

Another angle to this story: has the SFO ever accepted to call off an investigation against a humongous donation to charity? A quick search on the SFO website doesn’t indicate they ever did. Which isn’t to say it’s never happened but hardly in such a prominent case as the Tchenguiz case. And hardly for such a sum.

There are also some funny angles to this supposition. Why should the brothers pay if they are innocent? And why should the SFO accept such an offer if they think they have a case against the brothers? And if they don’t have a case the brothers will come out of it squeaky clean – though their defense will cost a bit. They truly have a formidable defense team, the best money can buy. For Vincent there is former Attorney-General – and as such the head of the SFO at the time – Lord Goldsmith, QC. For Robert, a former Director of Public Prosecution Lord Macdonald of River Glaven, QC.

For those interested in Kaupthing and its favoured clients, the coming week will be a very interesting one.

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Written by Sigrún Davídsdóttir

May 20th, 2012 at 9:50 am

Posted in Iceland

Kaupthing: employee loans – and the Tchenguiz judicial review

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The loans that Kaupthing offered to a group of key employees and management to buy shares in Kaupthing have turned into a millstone around the neck of some of these employees. Two rulings in Icelandic courts lately have obliged these people to pay.

The case that has gone all the way to the High Court relates to Delia Howser who had been working for Kaupthing from 1997. Compared to some other loans of billions of Icelandic kronas, her loans are very modest. All in all, the number mentioned in court as the grand total of the employee loans on Kaupthing books is ISK55bn.

In 2005, Howser took a loan of ISK18m, to buy shares in Kaupthing. According to the loan agreement the shares were the collateral and in addition the agreement stipulated that her personal guarantee was only 10%. This meant that no matter what, she would never pay more than 10% of the loan, in addition to giving up the shares, in case she defaulted on the loan. In 2007, she borrowed additional ISK3m to buy shares. For some reasons, this agreement didn’t mention any maximum to her personal guarantee.

In court, she claimed she had not been allowed to sell the shares except with permission from the bank. In court ex-CEO Hreidar Mar Sigurdsson confirmed her words. She also said that it had been her understanding that no matter what, she would never lose any money on this loan agreement – the loans were completely risk-free for her. In other words: she was free to pocket the dividend but wasn’t supposed to pay off the loans until they matured, in 2009 and 2010. The ruling went against her – she has to pay, in total, ISK6.5m (now €40.000. In the grand scheme of things, she was lucky that the much higher loan has the 10% limit to her personal guarantee.

With this ruling, it’s now clear that the Kaupthing employees who were favoured with these loans do have to pay them back. Also, the decision of the bank’s board from end of September 2008, just two weeks before the collapse, to free all the employee borrowers of their personal guarantee isn’t accepted by the court.

The other ruling, in the Reykjavík District Court, went against ex-chairman of the Kaupthing board, Sigurdur Einarsson. This ruling refers to following loans: ISK1bn in 2005, maturing in 2010; ISK1.2bn and ISK793.000 in 2006, both maturing in 2011; ISK247.000 in 2007, maturing in 2012; August 2008 ISK248.000, maturing in 2011. Interestingly, all of these loan contracts limited his personal guarantee to 10% and the only collateral were the shares. In court, Einarsson claimed that Kaupthing owed him  £1,2m pounds for unpaid loans, pension and other payments. The court rejected his claims and ruled that Einarsson should pay back 10% of the outstanding loans, in total ISK550m (€3.4m).

The feeling is that the employee loans were allegedly part of an extensive “share-parking” on behalf of Kaupthing’s management. While things went well, the employees pocketed the dividend – but in the end, these loans have turned out to be a major calamity for many of the employees. They can now ponder whether the management had more in mind the employees’ wellbeing or the need to park the shares and, when the shares started falling, the need not to sell so as not to show that the share price was, in all likelihood, even lower than the market price indicated.

Tchenguiz judicial review

Next week, Vincent Tchenguiz judicial review granted into his arrest, house searches and raids is scheduled to come up in court.* This case relates to an investigation into his connections with Kaupthing, conducted on behalf of the Serious Fraud Office, These three days in court will no doubt be highly interesting. His brother Robert has also been granted a judicial review.

Much of the dealings that Vincent and his brother Robert had with Kaupthing went through Luxembourg. SFO has, as well as the Icelandic Office of the Special Prosecutor, done house searches in Luxembourg. From the way Kaupthing was run, it’s quite clear that without documents and sources in Luxembourg the brothers’ connections – as well the relationship between Kaupthing and mother major clients – will neither be fully understood nor explained.

*Earlier Icelog on that case is here. – The ruling in the Howers case is here and Einarsson’s case here; both only in Icelandic – Mr L

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Written by Sigrún Davídsdóttir

May 17th, 2012 at 10:56 pm

Posted in Iceland

Remarkable development in Landsbanki Luxembourg

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Landsbanki promised “the most comprehensive protection possible” according to the bank’s documentation. That has proved to be very far from the truth. – As reported earlier on Icelog, a group of Landsbanki Luxembourg clients claim they are wrongfully being targeted by the bank’s administrator Mme Yvette Hamilius to pay back dubious “equity release” loans – and in some cases investments, which the bank made without the clients’ knowledge and/or acceptance.

The Icelandic resolution committees for the three Icelandic banks have used time and resources to investigate alleged fraud in the Icelandic banks. The same doesn’t seem to be done in Luxembourg. Icelog has heard evidence from Landsbanki Luxembourg clients, which give good ground to suspect that Landsbanki:

1 Bought the bank’s own bonds, on behalf of clients, without clients’ acceptance, shortly before the bank failed (and at a time when it was most likely already insolvent)

2 Money was taken from clients’ accounts without proper consent for trading

3 MiFID rules were neither applied correctly nor were the clients made aware of these rules and their implications for the clients.

As far as is known, the Landsbanki Luxembourg administrator hasn’t done anything to investigate – or have the proper Luxembourg authorities investigate – if this was the case or not. If it is indeed the case that Landsbanki Luxembourg accessed and used clients funds in an inappropriate way it would be most interesting to know who ordered it. Was this a concerted action? And who ordered this allegedly inappropriate use.

In spite of these alleged irregularities, Mme Hamilius seems to treat the clients as if nothing was wrong with the loans and is trying to recover them, going after people’s homes when everything else fails. Most of the clients are elderly and the administrator’s actions and her insufficient communication have put these clients under severe stress and duress by the administrator. An administrator’s business if of course recovery – but an administrator also has the duty to report eventual irregularities and to maintain a reasonable level of communications with those hit by the administrator’s actions.

There are already some legal cases related to Landsbanki clients in France and Spain traversing through court systems there. One couple in Spain have already won their case: their home is now debt free and Landsbanki has to pay them €23.000 in compensation. In spite of this, the Luxembourg administrator carries on as if nothing was happening.

Lately, the Landsbanki Luxembourg clients have organised themselves as “Landsbanki Victims Action Group” to put some pressure on Mme Hamilius. They now seem to be making some headway. After issuing a press release on May 7, where they questioned the buisness morale in Luxembourg the local media reported on the Action Group, its plights and a case in France, involving Mme Hamilius. She was interviewed in Paper Jam, a Luxembourg newspaper. Some of her answers there don’t quite fit the reality, seen from the perspective of the clients. The interview was no doubt a reaction to a media action by the clients’ pressure group, reported on in Luxembourg.

But the absolutely most remarkable part of this saga is that on May 8, Robert Biever Procureur Général d’Etat – nothing less than the Luxembourg State Prosecutor – issued a press release, as an answer to the Action Group. It is jaw-droppingly remarkable that a State Prosecutor sees it as a part of his remit to answer a press release that’s pointed against the administrator of a private company. One might think that a State Prosecutor would be unable to comment on a case, which he has neither investigated nor indeed been involved with in any way.

In this surprising move, the Prosecutor puts forth the following claim (in my rough translation; my underlining):

Following a criminal proceeding in France against Landsbanki Luxembourg November 24 2011 for fraud by the Parisian Justice Van Ruymbeke and without the liquidator accepting the merits of the claims, she offered the borrowers an extremely favourable settlement whereby the borrowers will only reimburse that part of the loans which they received for their personal use, excluding funds used for investments. A considerable number of debtors have now accepted the settlement and the repayment is now being finalised. However, a small number of borrowers are trying with all means to escape their obligations. These are the same people who sent out a press releases on May 7 2012.”*

Apparently, Biever takes such an extreme interest in the case that this civil servant can, the day after the Action Group’s press release (and on the same day it appeared in the Luxembourg media) answer with authority and full certainty. The Prosecutor’s statements raise some questions. How can the State Prosecutor say this is an “extremely favourable settlement”? What makes it favourable? According to my information, it’s indeed not the case that most have paid. How does the Prosecutor know how many have accepted the administrator’s offer? Where did the Prosecutor get that information? If that information came from the administrator, did the Prosecutor verify the numbers?

Since the high office of the Luxembourg State Prosecutor takes such an interest in this case there is perhaps hope that Biever’s curiosity is now sufficiently aroused for him to take a further look at what really happened in Landsbanki Luxembourg in terms of unsound business practice and improper use of funds. I can’t think of any European country where a State Prosecutor would wade into a case of this kind to make a comment. If his comment is made to come to the rescue of the administrator, the functioning of the Luxembourg justice system is light years from the justice system in its neighbouring countries.

Luxembourg makes a good living by being a financial centre. No doubt, its authorities want to emphasis, just like Mme Hamilius does in her interview, that in the little country investment is safe. International creditors should rest assured that no matter what, they will get their money back. This credo seems so important that the State Prosecutor sees it as his role to back up a bank administrator under pressure.

There is indeed a lot to defend in Luxembourg. Monday night (May 14) the BBC programme, Panorama, will “reveal how major UK-based firms cut secret tax deals with authorities in Luxembourg to avoid paying corporation tax in Britain.”  – Possibly another worthy case for the Luxembourg State Prosecutor.

*Suite à l’introduction d’une procédure pénale en France contre Landsbanki Luxembourg et à sa mise en examen le 24 novembre 2011 pour escroquerie par le juge d’instruction parisien Van Ruymbeke, le liquidateur sans pour autant reconnaître le bien fondé des poursuites, a proposé aux emprunteurs des transactions extrêmement favorables aux termes desquelles ceux-ci ne remboursent plus que le capital à eux remis pour leur usage personnel, à l’exclusion des fonds destinés aux investissements. Bon nombre de débiteurs ont d’ailleurs déjà accepté cette proposition et les transactions sont en cours de formalisation. Toutefois un nombre infime d’emprunteurs s’oppose à tout remboursement des fonds reçus et essaye de se soustraire à ses obligations par tous moyens. Ce sont ces mêmes personnes qui sont à l’origine du communiqué de presse du 7 mai 2012.”

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Written by Sigrún Davídsdóttir

May 13th, 2012 at 11:28 pm

Posted in Iceland