- Echeverria charged with mismanagement with intent to enrich
- He ran Banco Santander's Optimal Investment Services
The trial of Manuel Echeverria -- who streamed clients’ money to Bernard Madoff -- began Monday, making him the first European investment manager to reach court to face criminal charges for working with the convicted American fraudster.
Echeverria, who ran Banco Santander SA’s Optimal Investment Services unit from Geneva, faces charges of mismanagement with intent to enrich at the courthouse in Geneva’s old town. The case is expected to last all week.
Echeverria has history on his side. Seven years after Madoff admitted cheating investors, no cases linked to the disgraced financier have gone to trial in Switzerland, with the cases dismissed or settled. Making a Madoff-related criminal case stick in Europe is hard, according to Erik Bomans, a lawyer with Deminor Recovery Services, which represents more than 4,000 clients across Europe seeking to get money back from 10 different funds that lost money to Madoff.
“In all these cases we’re dealing with, we have not seen indications, let alone evidence, that these people running these funds knew he was running a fraud scheme,” Bomans said by telephone from Brussels. “It’s very difficult to prove. It doesn’t mean they’re not liable but it’s a different measure of liability, of course.”
Echeverria was charged in 2009, the same year Madoff was handed a 150-year prison sentence in the U.S. after he plead guilty to running a $17.5 billion Ponzi scheme that took money from new investors to pay old ones. Madoff’s conviction spurred angry investors around the world to sue for damages, prompting at least two cases in Geneva.
A settlement in September between the five former fund managers at Aurelia Finance SA charged with aggravated mismanagement gave the plaintiffs “strong” compensation in return for the charges being dropped. What “strong” meant was never disclosed and the plaintiffs had only about 60 million Swiss francs ($60.1 million) invested with Madoff through Aurelia.
Optimal was a much bigger deal, with about 2.33 billion euros ($2.54 billion) of client money invested with the New York fraudster at its peak. Laurent Moreillon, a lawyer for the plaintiffs, has said there were signals and suspicions about Madoff’s operations that Echeverria shouldn’t have ignored and accuses him of not doing the necessary due diligence.
The fact that Echeverria had e-mail exchanges with Madoff and even met him on a few occasions doesn’t implicate him in any kind of fraud or criminal mismanagement, Andrew Garbarski, one of the two lawyers representing Echeverria in the trial, said in court.
According to the indictment handed out Monday morning before the trial began, shortcomings in Echeverria’s management “allowed this feeder fund to exist, take in investor money, and then make it disappear in one of the greatest frauds in investment history.”
Under Geneva law, the charge of mismanagement with intent to enrich carries a maximum penalty of five years’ imprisonment. However in a sign Geneva prosecutor Marc Tappolet may be backing off, he sought no prison term but a fine of 150,000 Swiss francs ($150,000) with a three-year suspension. That means the fine would not be payable provided the convicted party committed no infractions of probation for three years.
Echeverria “categorically disputes” the charges against him, another of his lawyers, Saverio Lembo, said before the trial. “He is himself a victim of this unprecedented fraud.”
Optimal has been exonerated by the civil courts in Spain as well as by the trustee in charge of Madoff’s liquidation in the U.S., Irving Picard, Lembo said.
As the trial began, Echeverria’s lawyers began by questioning whether Franck Berlamont, the plaintiff in the case was a legitimate plaintiff.
“Mr. Berlamont is not the victim he portrays himself to be” and is not qualified to be a plaintiff in this case because his modest personal investments with Optimal were not known to Echeverria, Garbarski said in court. Berlamont had 101,000 Swiss francs of his own money invested with Optimal, according to the Geneva prosecutor’s indictment. Geneva Partners, Berlamont’s investment firm, had about another 37 million francs of client money invested with Optimal, the indictment shows.
Judge Alexandra Banna overruled a request he be dismissed as plaintiff after a short break.
Lembo then asked that testimony cited in the indictment from witnesses including former Optimal executives Rajiv Jaitly and Hugh Burnaby-Atkins be disregarded because the men had declined to give testimony for the Geneva trial and had only testified in previous U.S. proceedings. Judge Banna overruled that request as well.
Santander, without admitting fault, agreed in 2009 in the U.S. to pay $235 million to Picard to settle claims related to its profit from the fraud. Picard has been suing Madoff’s biggest beneficiaries to get back as much lost money as he can.
While five of Madoff’s top aides were convicted last year, several associates have avoided prison terms this year by cooperating. Paul Konigsberg, one of Madoff’s accountants, dodged a jail sentence in July because the U.S. judge in his case said the accused was an “outsider” who had no knowledge of Madoff’s scheme.