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Tears, `Fear' and Forgeries: Key Issues From Credit Suisse Case

(Bloomberg) -- There have been thousands of words uttered in French, plenty of outrage expressed in Russian, and even a few tears shed during the first week of the Geneva trial of Patrice Lescaudron, the former Credit Suisse Group AG banker on trial for defrauding his clients from across Eastern Europe over a stretch of more than six years.

Lescaudron, 54, has admitted to falsifying trading instructions to try to dig himself out of growing trading losses for his clients that began more than a decade ago and were undiscovered until 2015. Credit Suisse’s lawyers stuck doggedly to the argument during the trial that the Frenchman hid his deception from his employer and that a two-year investigation has done nothing to suggest any of his colleagues were complicit in his deceit.

Lawyers for the plaintiffs -- who include an ex-Russian senator and former prime minister of Georgia -- tried to argue throughout the week that given their high profile and the amount of money Lescaudron was in charge of, about $1.6 billion, Credit Suisse should have kept a much closer watch on him and that the bank should face greater scrutiny.

Here’s what we’ve learned so far:

Disjunction Function:

Lead prosecutor Yves Bertossa last year signed a so-called disjunction order, splitting the question of Credit Suisse’s responsibility from Lescaudron’s to focus the trial on the banker. Presiding Judge Alexandra Banna showed in the first week she wouldn’t tolerate fishing expeditions. She rejected one lawyer’s opening-day request for a delay to proceedings to allow an independent judicial expert to examine the bank’s role. Banna then shut down lines of questioning from the plaintiffs’ attorney that she felt strayed too far into Credit Suisse’s responsibility.

‘Gnawing Fear’

Lescaudron began to open up on his second day on the stand about what motivated his fraud, admitting that it was a “gnawing fear” that drove his deceit and also pushed him to seek medical treatment for hypertension and depression. As he put it on the stand, by the end, “when I left the house in the morning and locked the door, I told myself that day I will either be arrested or I will end up in hospital,” he recalled.

‘Bank was a God’

Clients said they trusted Lescaudron and the bank implicitly right up until September 2015 when his fraud was exposed. “Until 2015, for me, the bank was a god,” ex-Russian senator Vitaly Malkin testified on Wednesday. “The idea at the time, that the bank could cheat its clients through the actions of one of its employees, struck me as absurd. Alas, I was mistaken.”

Olga Korbatova, a Russian who made her fortune in the soft-drinks business, said, tearfully, that she was in a state of shock when she learned of the deception. “I trusted Credit Suisse fully [...] because it was Credit Suisse.”

Magic of a “Star”

Lescaudron’s boss, Basile Samarine, told the court he had no explanation for how Lescaudron did what he did. Despite no banking experience before joining Credit Suisse in 2004, Lescaudron was picked a few years later to handle the accounts of Malkin and ex-Georgian President Bidzina Ivanishvili and was considered a ‘star’ at the bank, Samarine said. Internal audits of Lescaudron in 2010 revealed nothing unusual. Asked why Credit Suisse’s control mechanism to catch wrongdoing failed, Samarine was at a loss for words. “I can’t explain it,” he said.

Workaholic

Lescausdron’s son, Denis, told the court that father became a workaholic after joining the bank because he fretted over whether he would be able to win new clients.

“When he began working for Credit Suisse, he was worried that his lack of experience would mean he wouldn’t find clients,” the son said. Lescaudron did find them, he said, and that only meant longer hours and regular business trips. “Then, he would leave early and return late and work during the holidays.”

Hiding in Excel

Lescaudron’s deception predated even the global financial crisis of 2008-9 when he began sending at least one client Excel spreadsheets that hid losses he’d incurred on her behalf on a bad bet on an Austrian stock.

His downfall came when he tried to re-coup some losses with a failed big bet on Raptor Pharmaceuticals, which triggered margin calls of more than $100 million for his clients and forced the Frenchman to admit his wrongdoing to the bank.

Delay

Banna agreed to suspend the hearings for a day, with the case resuming Tuesday, to allow  Simon Ntah, Lescaudron’s lawyer, more time to review a legal opinion on asset confiscation that was introduced Friday before his final arguments.

Banna will decide what to do with more than $100 million of Lescaudron’s assets including a luxury estate on the French Riviera and property assets sequestered as they are tentatively classified as proceeds of a crime.

To contact the reporter on this story: Hugo Miller in Geneva at hugomiller@bloomberg.net.

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Christopher Elser

©2018 Bloomberg L.P.

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