Ex-Credit Suisse Banker's `Gnawing Fear' Drove Deception DeeperBy
Ex-banker on trial in Geneva, accused of defrauding clients
Lescaudron grilled about bonus payments from Georgian client
Former Credit Suisse Group AG banker Patrice Lescaudron said he took one thing with him when leaving for work each morning: the fear that it was the day his six-year campaign of fraud against clients would be exposed.
The 54-year-old, fighting charges in a Geneva court, said he started moving money between client accounts to hide losses around the time of the 2008 financial crisis. The worry about staying one step ahead of clients and authorities led him to increase his activities, he said, because “when you are scared, you can do no matter what.’’
Lescaudron, who has spent the past two years in a Geneva jail, has admitted faking trades to pinch money from one client to cover the losses of another. At his peak, the 54-year-old was managing about $1.6 billion for clients in Russia and Georgia, including former Georgia Prime Minister Bidzina Ivanishvili.
After admitting to prosecutor Yves Bertossa on Tuesday morning that worries motivated his deception, Lescaudron found himself being questioned by Maurice Harari, Ivanishvili’s lawyer, about the extent of his stress.
“It was a fear of being arrested, of being discovered,” said Lescaudron, who described the feeling as a “gnawing” emotion that endured for years and led to the hypertension and depression for which he sought treatment. “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.
Earlier, Judge Alexandra Banna quizzed Lescaudron about the secret trading on behalf of Ivanishvili, a billionaire and his biggest client. Lescaudron explained that starting in 2010 he invested around 120 million Swiss francs ($124 million) on behalf of Ivanishvili in Swiss hedge funds named Mensa, Hyperion and Matterhorn.
Ivanishvili was looking to diversify investments with the bank through an external fund manager, Lescaudron said. What Ivanishvili didn’t know was that Lescaudron made money from the trades.
“Did Mr. Ivanishvili know you were getting these commissions,” asked the judge. “No,” responded Lescaudron stoically. Credit Suisse also didn’t know about the extra payments, according to a prosecutors’ indictment issued in June.
The three hedge funds Lescaudron picked for Ivanishvili were heavily invested in one company, Raptor Pharmaceuticals, whose stock plunge in September 2015 triggered margin calls of more than $100 million for Ivanishvili and prompted Lescaudron to own up to his deception. When notified of the margin calls, Ivanishvili and his advisers expressed surprise that their bet on Raptor had grown so large.
“Hyperion was invested 100 percent in Raptor in mid-2015, is that possible?” Judge Banna asked. “Yes,’’ replied Lescaudron, dressed in blue jeans and black sneakers.
Tuesday’s session zeroed in on Lescaudron’s role, with testimony expected from colleagues, and other plaintiffs later in the week. In addition to ruling on Lescaudron’s punishment, Judge Banna will also decide what to do with more than $100 million of client’s assets including a luxury estate on the French Riviera and property assets sequestered as they are tentatively classified as proceeds of a crime.
In the case of two other key clients, a pair of Russian oil and gas executives, Lescaudron invested heavily in Austrian real-estate company Meinl European Land Ltd. without their permission. The stock lost more than half its value in 2007 after the company was investigated for allegedly misleading investors.
Banna asked him if he reported those losses in the regular Excel spreadsheets he sent to the Russians.
“No,” responded Lescaudron.
After the lunch break, Vincent Jeanneret, a lawyer for the bank, grilled Lescaudron about the $1.5 million in payments he received from Ivanishvili in 2008 and 2009. Lescaudron used a private email to tell Ivanishvili about separate bank accounts where he could place the deposits, which the banker never reported to Credit Suisse, Jeanneret said.
“You could have refused the bonus or accepted it and reported it to Credit Suisse, but you did neither,” Jeanneret said. “Why?”
Lescaudron said he was surprised when Ivanishvili offered the first of the payments in 2008. He ultimately decided to accept what he considered to be a bonus from Ivanishvili for his investment advice and didn’t think he needed to tell Credit Suisse.
“You also have to go into the Russian psyche and that of the former Soviet Union and the idea of generosity where managers accept gifts,” Lescaudron said. “They offered me things that I refused, but this I accepted.”