Credit Suisse warns of $500 million in lawsuit from billionaire

Credit Suisse CS -1.94%

Group AG is expected to pay around $500 million after losing a lawsuit brought by a Georgian billionaire who claimed the bank mismanaged its money.

Credit Suisse has spent years fending off claims by Bidzina Ivanishvili, a former prime minister of Georgia. He sued the bank in Bermuda and Singapore for breach of trust, claiming he lost $800 million in bogus trades by his Geneva-based private banker, Patrice Lescaudron. Mr Ivanishvili is seeking $400 million in damages in the Bermuda Supreme Court, where a five-week trial ended in December.

In a statement Wednesday, Credit Suisse said a judgment against the Bermuda bank for potentially more than $500 million is expected soon. A person familiar with the matter said the verdict came from Mr Ivanishvili’s lawsuit.

Mr Lescaudron was sentenced to five years in prison in Switzerland in 2018 for fraud and forgery. He admitted cutting and pasting clients’ signatures to siphon money and buy shares without their knowledge, causing a loss of more than $150 million, according to the Geneva Criminal Court.

At his trial, Mr Lescaudron said his aim had always been to make big profits for his clients and some money for himself as well. He apologized to Credit Suisse, former colleagues and his clients for his actions. Mr Lescaudron served a two-year pre-trial detention and was released in 2019. He killed himself in 2020.

Credit Suisse denied Mr Ivanishvili’s claims and said it was also the victim of an unscrupulous employee who broke the rules. But evidence in the Bermuda trial included a 2017 report for the Swiss financial regulator that found around a dozen executives or managers at Credit Suisse’s private bank knew Mr Lescaudron was repeatedly breaking rules, but kept an eye out and suggested light punishment for his misconduct or something else glossed over the problems because he was bringing in around $25 million a year in revenue.

Credit Suisse tried to prevent the report, the contents of which were first reported by the Wall Street Journal in February 2021, from being shared with Mr. Ivanishvili in the Bermuda proceedings.

Regulator Finma publicly rebuked Credit Suisse in 2018 for failing to monitor and discipline Mr Lescaudron, saying he had repeatedly breached internal rules. Credit Suisse said it discovered Mr Lescaudron’s fraud in September 2015 when a stock he had bought for clients crashed.

The report, commissioned by Finma, revealed that Mr Lescaudron’s activities have triggered hundreds of alerts at the bank, which have not been fully investigated over the 2009-2015 period under investigation. A business risk manager who tried to escalate the problems told report investigators he feared losing his job if he continued to sound the alarm, the report said.

Credit Suisse said it had previously built up reserves without saying how much and intends to pursue all available legal action.

As recently as November, the bank would not say whether it had made provisions for the billionaire’s cases. It also didn’t disclose a provision specific to the cases in its annual report released earlier this month.

Credit Suisse had 1.65 billion in litigation provisions at the end of 2021. The bank said it will assess whether additional reserves are needed in its first-quarter results, due April 27.

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