Sigrún Davíðsdóttir's Icelog

It’s now long since the fateful days in early October when the three main banks in Iceland collapsed, a story well told in an investigative report in April 2010 and on Icelog over the years. However, in Luxembourg untold Icelandic stories still loom, regarding Landsbanki Luxembourg and its equity release loans sold in France and Spain and an entity closely related to Kaupthing and its managers. CSSF, the Luxembourg regulator has kept its blind eye on these stories. But once in a while, the CSSF does rise to act, as a recent decision regarding the afterlife of an investment fund that went into liquidation.

For decades, equity release loans sold mainly to elderly people – often asset rich but cash poor – have caused problems in various countries. Problems, which were not spelled out by the agents, who sold these loans in France and Spain as agents for or on behalf Landsbanki Luxembourg. When the bank collapsed, following the collapse of the mother bank in Iceland, the investment part of these loans were wiped out.

It took the borrowers some years to find out that many of them were experiencing the same problems. The figures didn’t add up and the administrator, Yvette Hamilius, was unwilling to clarify to the borrowers what exactly their positions were. Borrowers claimed they were being told to pay not only what they money they had taken out but the whole loan, with the investment part being ignored. The administrator claimed the borrowers were refusing to pay.

In addition, there seems to be evidence that prior to its collapse, the bank didn’t invest the funds from these loans in an appropriate way.

CSSF: nothing to see, nothing to do

The borrowers have tried to have their cases investigated by the Luxembourg regulator, Commission de Surveillance du Secteur Financier, CSSF. CSSF has completely ignored the borrowers, in spite of a myriad of court cases related to Landsbanki in Iceland. Also, contrary to administrators of the collapsed banks in Iceland, the Landsbanki Luxembourg administrator allegedly never showed any interest in that side of an administrator’s role.

French authorities investigated Landsbanki’s operations in France in a very strange case, which the prosecutor lost. Strange, because it was investigated very differently from the way banking cases were successfully investigated and prosecuted in Iceland. In Spain, some borrowers have successfully thwarted the administrator’s attempt to seize their homes and houses while other cases have been lost.

In a recent French case related to a Landsbanki equity release loan, the Cour d’Appel d’Aix-en-Provence stated that Landsbanki Luxembourg didn’t have the license to operate in France, ie didn’t have the license to sell these loans but that didn’t necessarily change anything for the borrowers – sounds weird to a non-lawyer but that’s what the Court states.

CSSF did however start to investigate a company called Lindsor, related to Kaupthing’s managers and some of its largest shareholders. Already in 2019, Icelog reported that the case was allegedly fully investigated but that the Luxembourg prosecutor was dithering as to whether to prosecute or not. Long story short: nothing has been heard of this case. Yet another case where Luxembourg could have done something, had indeed spent time and man power on investigations but somewhere in the system, this case seems to have expired for good.

The sense is that in a lilliputian country like Luxembourg, which lives and lives well off its financial sector, safeguarding the sector and not those who do business with that sector seems of major importance.

CSSF: a tiny sign of life

In 2020, Icelog reported on how investors in a failed Luxembourg investment fund claimed the CSSF’s only interest seemed to be to defend the Duchy’s status as a financial centre, not investigate alleged misdoing within the Duchy’s financial sector. This story was mentioned as a parallel to the travails and tribulations of the Landsbanki Luxembourg borrowers.

Now in February this year, 7 February 2023, in a press release the CSSF stated that in December, it had indeed taken action in that case by imposing an administrative fine of EUR174,400 on the investment fund manager Alter Domus Management Company S.A. (formerly known as Luxembourg Fund Partners S.A.) which took over the administration of a fund, which went into liquidation in early 2017. Interestingly, investors in the funds in question, felt that not all had been well before the liquidation but that the administrator hadn’t paid any attention to their concerns.

The very brief CSSF press release doesn’t go into the details of what happened but the interesting part of the very brief press release is this: “During its investigations, the CSSF identified the existence of material and persistent failures – originating before the liquidation of the SubFund – to comply with the provisions of the Law relating to general requirements on due diligence, on conflicts of interest and in terms of procedures and organisation.”

From the point of view of the borrowers of Landsbanki Luxembourg equity release loans this is a striking parallel: something wasn’t right before the liquidation, something wasn’t right after it. However, the striking difference is that the fund story was investigated and fine imposed. As the CSSF states this followed an “ad hoc investigations carried out by the CSSF”. Sadly, no ad hoc investigation into Landsbanki Luxembourg and the Lindsor story seems dead.

Icelog has covered these stories extensively in earlier years. Curious readers can find them by searching for key words such as “equity release.” David Mapley has been investing the fund story, mentioned in an Icelog in 2020.

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