Report on Credit Suisse Banker’s Fraud Shows Years of Lapses

(Bloomberg) -- Credit Suisse Group AG failed to adequately handle early episodes of misconduct by one of its former star bankers who was subsequently convicted and imprisoned for fraud, according to a report from Switzerland's banking regulator that the lender had sought to suppress.

“Drastic restructuring” in 2012 and 2015 led to frequent personnel changes at Credit Suisse's private-banking unit that only contributed to the problem, according to a copy of the report that a group called CS Victims posted on its website. A spokesman for Finma, which commissioned the Zurich firm Geissbuehler, Weber & Partner to prepare the report, declined to comment on the document.

The flux in management “led, among other things, to insufficient communication and delegation of P.L.'s misconduct and the supervisors' responsibilities and tasks with regard to P.L,” the authors wrote, referring to the convicted banker Patrice Lescaudron by his initials. More importantly, the authors wrote, “none of the parties involved felt responsible for conclusively analyzing the already known” episodes of misconduct.

The emergence of the report is in itself a breakthrough given that Credit Suisse turned to the Swiss courts to block its release. A Geneva appeals court issued a suspension order last year to temporarily keep the 2017 report confidential.

Lescaudron, who killed himself in July, had joined the firm in 2004 from outside the industry. As a Russian speaker, he quickly found himself managing more than $1 billion for some of the bank's biggest clients in the region. The Frenchman was one of its “top 3” performers, according to the Geissbuehler report.

But then in around 2008, he began to run into heavy losses on behalf of his clients. Rather than telling colleagues, he told the court during his 2018 trial, he doubled down, forging signatures, manipulating spreadsheets and faking trades to try to buy time to recover from those losses. The scheme went undetected for more than seven years until a massive bet on a single drug stock in the U.S. in 2015 went badly wrong and exposed his fraud.

Read More: Credit Suisse Wins Bid to Keep Fraud Report Secret

Credit Suisse, which faces a criminal probe by a Geneva prosecutor, has consistently countered that Lescaudron was a lone wolf who kept his criminal activity secret from his colleagues. His former boss testified at his trial that he simply didn't know how the bank's compliance protocols didn't catch his subterfuge.

“This specific document corresponds to the early stages of a closed legacy case review,” the bank said in an emailed statement. “Such review did not reveal any facts that would support the criminal complaints against Credit Suisse.”

CS Victims.com, a website set up to publicize the case on behalf of a group of clients including former Georgian prime minister and billionaire Bidzina Ivanishvili, rejected the notion the report contained nothing new.

“Several of the bank's employees raised concerns which had they been properly investigated, would have most certainly led to the discovery of the fraud much sooner, limiting the harm to clients,” CS Victims said in a statement. “Instead, the concerns were ignored, time and time again.”

In the summer of 2015, Lescaudron's superiors had certain concerns as to whether all the trades he carried out on behalf of Ivanishvili were actually confirmed by phone by a representative for the Georgian, according to the report. The bank recommended daily reporting of Lescaudron's activity on that account, and yet his fraud continued.

A lawyer for Lescaudron throughout the case wasn't immediately available to comment on the report, news of which was reported earlier by the Wall Street Journal.

The Finma report concludes by suggesting that the bank could have caught Lescaudron's fraud because there was evidence of it, but never knew about it.

“Although the transactions and investments initiated by P.L. concerned CS customers and several transactions were recorded in the bank's transaction monitoring system, the bank did not become aware of the apparently fraudulent actions of P.L.,” it says.

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