Bloomberg

(Bloomberg) -- Months before a Credit Suisse Group AG wealth management banker was arrested in Geneva on charges of fraud and forgery, the bank considered giving him freer rein to do as he saw fit with client money.

In early 2015, Credit Suisse’s risk and compliance officers met with the banker and his Geneva manager. The purpose was to discuss how L., as he can only be identified under Swiss law, might get greater latitude to manage the assets of his biggest client, billionaire and former Georgian Prime Minister Bidzina Ivanishvili, according to people familiar with the meetings. Those people did not want to be named because the criminal proceedings against L. for misuse of customer investments are still underway.

The plan called for L. to be able to use funds from Ivanishvili’s account without having to ask the client for permission, the people said. Instead, L. would send a daily e-mail update on the trades he had already made, the people said.

Discussions like that would show how far the bank was from reining in a money manager whose fraud landed him in jail and put a spotlight on Credit Suisse’s compliance and oversight. As it later emerged, L. had been trading in client accounts without their permission, forging orders and moving funds from some accounts, including Ivanishvili’s, to cover losses in others. Those revelations came to light only when L. confessed to bank security staff in September 2015, according to a transcript of the meeting seen by Bloomberg.

The events are now the subject of half-a-dozen lawsuits in Switzerland by Ivanishvili and others, in addition to the investigation by the Geneva prosecutor. L. continues to be held in a Geneva prison and has not been released on bail as the Frenchman is considered a flight risk.

Credit Suisse, Switzerland’s second-largest bank, said in a statement that the former relationship manager concealed his deceptions from colleagues and that this is, to the best of its knowledge, an individual case. Adam Rooney, Ivanishvili’s lawyer, declined to comment.

‘Stakes Are Huge’

Still, the fallout could go beyond the banker and hit Credit Suisse, which has pinned its future in large part to the wealth management business as investment banking shrinks.

“The stakes are huge in terms of reputational damage,” said Jennifer Jordan, a professor of organizational behavior at IMD business school in Lausanne, Switzerland. “It’s not just about one banker or one department or one client at Credit Suisse.”

The Geneva case is playing out while Credit Suisse is also under scrutiny in the U.S. The bank could face a new civil or criminal case for failing to tell U.S. authorities about some $200 million in undeclared assets owned by an American client, according to people familiar with the matter.

Credit Suisse’s assets under management fell by 2.4 percent as of September, compared with a year earlier, to 1.255 trillion Swiss francs ($1.239 trillion). The bank generated a net increase in assets under management in the third quarter compared with the second, which it ascribed in part to new flows from clients.

Falsified statements

Ivanishvili’s adviser, George Bachiashvili, confirmed he began receiving daily updates, according to one of the people. It’s unclear, however, what information those e-mails contained, since L. admitted to Credit Suisse security staff in September that he falsified some client statements as his losses deepened. L. also said then that the new system hadn’t been put in place by the time he was arrested.

Bachiashvili and Simon Ntah, L.’s lawyer declined to comment.

Six plaintiffs to date have filed criminal complaints against L., with at least three of them alleging that the Frenchman may have benefited from the complicity of colleagues. Two plaintiffs cited Credit Suisse in their complaints, asking for the bank to be held liable if wrongdoing can’t be attributed to an individual. Lawyers for Ivanishvili, who filed the first of the client complaints and triggered the prosecutor’s investigation, alleged in a later filing that Credit Suisse failed to install adequate procedures to prevent money laundering.

Lawyers for the six, which includes a former Russian Senator Vitaly Malkin, were able to to grill L. at closed hearings Wednesday and will do so again on Nov. 25, according to the people familiar with the timing. Geneva Prosecutor Yves Bertossa plans to wrap up the investigation with a final hearing on Dec. 3, the people said. A spokesman for the prosecutor said he plans to complete the investigation very soon, declining to give any dates. 

The prosecutor’s office then has four options: to throw out the case, impose an immediate fine of up to 1,000 Swiss francs and six months in prison, enter into a plea agreement in which the defendant acknowledges the main charges in the case in exchange for a prison term of no more than five years, or send the case to court for trial.

--With assistance from Jeffrey Vögeli and Helena Bedwell To contact the reporter on this story: Hugo Miller in Geneva at hugomiller@bloomberg.net. To contact the editors responsible for this story: Alan Katz at akatz5@bloomberg.net, Christopher Elser

©2016 Bloomberg L.P.

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