Alexander Vik went to Deutsche Bank AG (DBK)’s London office in October 2008 to meet account managers who congratulated the Norwegian entrepreneur on how well his Sebastian Holdings Inc. investment fund was doing.
Within a month, as global markets tumbled into crisis, the same bankers demanded about $530 million against the fund’s currency bets and began to liquidate its positions.
Vik, 58, claims the fund had about $8 billion in losses and missed profits, Deutsche Bank said in court documents released at the start of a 12-week trial today in London. A judge will have to decide whether Sebastian’s calculation of lost trading is accurate, said John Day, a lawyer at London-based litigation firm DaySparkes.
“Quite apart from the spectacular sums at stake, one of the key questions for the court will be whether the losses that Sebastian is claiming following the closing out of its positions were too speculative,” said Day, who isn’t involved in the suit. “This case could well have potentially far-reaching implications for the wider banking community.”
The Sebastian trial is one of a host of legal and regulatory challenges that could effect the profitability of Germany’s biggest lender. Deutsche Bank raised its litigation reserves by about a third to 2.4 billion euros ($3.1 billion) in March, to cover costs linked to U.S. mortgage lawsuits and other regulatory probes, while it also faces probes into carbon-credit trading and interest-rate manipulation.
Deutsche Bank said Vik’s claims are unfounded.
The Vik lawsuit “is about a margin call that was missed and remains unpaid,” Sebastian Howell, spokesman for Frankfurt- based Deutsche Bank, said in an e-mail.
Deutsche Bank said in court documents released today that Sebastian was seeking damages of more than $8 billion, a figure it described as “ambitious.”
Vik, the captain of the Harvard College golf team while studying there in the 1970s, declined to comment through his lawyer, Jonathan Leslie.
The London trial will focus on investments made by Klaus Said, a former Credit Suisse Group AG (CSGN) banker hired by Vik in 2006 as a foreign-exchange trader. Sebastian, whose sole director and shareholder is Vik, said in court documents from 2011 that Deutsche Bank allowed Said to breach pre-agreed trading limits and rack up losses of about $750 million on “exotic” currency derivatives.
Sebastian Holdings relied on the bank to manage its risk and report losses, the investment fund said in the lawsuit.
“The bank at least suspected, and more probably was consciously aware, that Mr. Said was not acting with” Vik’s authority. As a result, Sebastian said, the October 2008 margin calls weren’t valid.
Said, now head of foreign exchange at CRT Capital Group LLC in New York, said he wouldn’t testify at the trial and declined to comment when reached by phone.
Deutsche Bank cited e-mails and messages written by Said taking responsibility for the losses, in court documents today. “This is an absolutely perfect storm,” Said wrote, referring to 2008 market conditions.
“The mistakes were mine -- errors of judgment and lack of foresight, but not maliciousness or carelessness,” he wrote later in a letter to Vik’s wife, apologizing for the trades, Deutsche Bank said in court documents.
“What did these parties agree” to?, Deutsche Bank lawyer David Foxton, asked during opening arguments today. “Deutsche Bank were not assuming any responsibility for monitoring” Sebastian’s or Said’s trading.
Vik said in a 2006 interview that he operated the fund from Monaco, dividing his time between the principality and a mansion in Greenwich, Connecticut. He made more than $250 million with his brother selling stock in Xcelera Inc., an Internet firm they founded together, according to a Boston class action filed against the company in 2001 after its value plummeted. That lawsuit was dismissed in 2008.
Deutsche Bank argued in court documents that it acted properly in requesting the margin payments, transferring money from a separate equities trading account and liquidating positions. The lender is seeking about $246 million from Sebastian as well as damages for breach of contract.
As well as losses of $750 million from the foreign-exchange trades, Sebastian said it missed out on profits of about $700 million from having to close currency, gold and futures positions as well as losing a $1 billion capital fund it held with the bank, according to its court documents.
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