A Swiss court ruling against the handover of UBS bank client details to the United States threatens to add to the problems of already harassed lawyers.
Last week’s decision against Switzerland’s financial regulator has led to speculation about possible legal actions from disgruntled US clients of UBS against the state and even the bank itself.
The federal administrative court said on Friday that the Swiss Financial and Market Supervisory Authority (Finma) had acted illegally when it transferred the detail of 285 UBS account holders to the US last year.
Professor Peter V. Kunz, a financial legal expert at of Bern University, believes the ruling could open the way for criminal and civil actions against Finma and Switzerland. But he insisted that threats to sue UBS would not work because the bank was operating under orders from above.
“There is no space for actions against UBS. They can argue that they were forced into this by Finma. It may seem strange, but UBS was the only party not involved in this action [to hand over the information],” he told swissinfo.ch.
But even if UBS avoids any direct legal fallout from the court decision, it still faces the prospect of dealing with separate unrelated actions – along with other Swiss banks.
Lessons to be learned
The financial crisis saw fortunes being lost in paper thin investments that were said to be rock solid at the time the deals were made. Lawyers are now battling to determine how much responsibility should be borne by investors and how much by the institutions that advised them.
UBS is currently facing legal pressure from clients of a failed $6 billion (SFr6.14 billion) property fund that was closed in December after running into problems.
Lawyers acting for some of the 107,000 investors (20,000 of them in Switzerland) insist that the bank should pay back at least part of the money. UBS has steadfastly denied that it continued to pour clients’ assets into the fund months after it had blocked withdrawals in order to keep it afloat.
However, Zurich lawyer Daniel Fischer, who last year negotiated a settlement with Credit Suisse on behalf of clients who had suffered losses related to the collapse of Lehman Brothers bank, hopes UBS would still offer some form of restitution.
“I hope that UBS has learned its lesson from other legal conflicts and that the new management will handle these problems in a more customer friendly way and with more foresight,” Fischer told swissinfo.ch.
Lawyers at Credit Suisse are also being kept busy with a $24 billion lawsuit from the owners at four US luxury ski and golf resorts. Credit Suisse is accused of violating racketeering laws as it bankrolled the developments.
The class action lawsuit from 3,000 investors, filed at the start of the year, claims that the bank inflated the value of the resorts and burdened them with too much debt, which inflated the fees it could charge.
Credit Suisse denies the allegations and said it would fight the legal action.
But the legal problems for banks do not end there. The collapse of other investment vehicles - such as the Bernard Madoff ponzi scheme and the K1 hedge fund – have also attracted the attention of lawyers.
Banks may argue that investments were conducted in good faith with no guarantees of success – and indeed, with appropriate warnings of potential failure. But the reputational damage associated with public court hearings is sometimes too much to bear.
In such cases, an out-of-court settlement is often the best solution for all parties. Credit Suisse, for example, was able to turn a potential public relations disaster into a good news story when it agreed last year to compensate clients for losses associated with failed Lehman Brothers products, without accepting legal liability.
Lawyers at several Swiss banks will face a busy 2010 sorting through claims from disgruntled investors.
Matthew Allen, swissinfo.ch in Zurich
Friday’s court ruling that Finma broke Swiss law by handing UBS client data to the US authorities last year has led to calls for a full parliamentary inquiry into the affair.
The right-wing Swiss People’s Party, along with the Green Party and the centre-left Social Democrats have voiced their support for such a wide ranging investigation.
So far, the centre ground Radical Party and the Christian Democrats have not joined in these calls.
The affair is currently being probed by a sub-committee of the permanent parliamentary control committee, that is nearing the end of its work.
But many politicians think the issue should be probed by a body with more teeth to get to the bottom of events.
The role of Finance Minister Hans-Rudolf Merz and the whole cabinet has been called into question in relation to the Finma decision to pass on UBS data.
A full-blown parliamentary investigation would require the consent of both houses of parliament – a mandate that could not be given before the spring session.