(MENAFNEditorial) One of two defendants in the biggest ever financial mis-selling case in the GCC region, Bank Sarasin-Alpen (ME) Limited, the formerMiddle East affiliate of co-defendant Swiss Private Bank J. Safra Sarasin, has failed to meet the requirement of the Court of the Dubai International Financial Centre (DIFC) to deposit the sum of US $35,028,474.00 (its share of US $70 million damages) by 1st February 2016 pending the two banks' appeal against record damages awarded against them.
In November 2015 the DIFC Court determined that the two banks should pay the Al Khorafi family more than US $70 million to cover financial losses resulting from the sale of US $200 million structured investment products between late 2007 and early 2008. Bank J. Safra Sarasin immediately paid its share of the damages into court pending the hearing of its appeal against the award of damages. However, Bank Sarasin-Alpen (ME) Limited did not pay its share and sought a stay of the order to pay the damages which was denied on 18 January 2016. Bank Sarasin-Alpen (ME) Limited was ordered to make a similar payment into Court by 1 February 2016 and has failed to do so.
This latest development in a long-running legal battle between a wealthy Kuwaiti businessman and the notoriously secretive private investment banking industry, in theory, exposes Bank Sarasin-Alpen (ME) Limited to the possibility of further proceedings and throws the appeal against damages, which is expected to be heard by the DIFC Court of Appeal in March 2016, in doubt.
The claimant will now seek to enforce the next step in securing the sum through the DIFC Court.
BACKGROUND TO THE CASE
In November 2015, following on from its definitive Judgement on liability in August 2014, the DIFC Court for the first time used its powers to award US-style punitive damages of up to three times the actual loss sustained. In its November 2015 ruling, the Court determined that the two banks should pay the Al Khorafi family more than US $70 million to cover financial losses resulting from the sale of US $200 million structured investment products between late 2007 and early 2008. The Swiss Private Bank J. Safra Sarasin was ordered to pay US$ 35,028,474.00 and its subsidiary was ordered to pay the same amount as joint damages and an additional equal amount as punitive damages, together totaling US $70,056,948.00 plus costs and interest.
The judgement found not only that the investments were inappropriate to the family's stated objectives but also that the conduct of the subsidiary Bank Sarasin-Alpen (ME) Limited had been deliberate and egregious, including the falsification of documents to make them appear as if they had been completed by the claimants. The mis-selling by Sarasin-Alpen was motivated in the case of its Managing Director, Rohit Walia, by "a personal interest in the fees that would be generated by the exercise".
As regards Bank Sarasin Limited (now Bank J. Safra Sarasin), the judgment found that the bank was content to allow the mis-selling to take place and that it failed to exercise any adequate supervision over Bank Sarasin-Alpen (ME) Limited, whom it held out as its own Client Relationship Managers.
An appeal by the defendant banks against the judgement of their liability in the case was heard by the DIFC Court of Appeal inSeptember 2015. The Appeal Court's decision on liability is still outstanding with the final appeal against the scale of damages expected to be heard in March 2016.
According to Hamdan Al Shamsi Lawyers & Legal Consultants, the firm acting for the Al Khorafi family, the case is being closely observed by the international banking world as setting a precedent within a region where cash-rich Middle Eastern investors meet Western financial institutions responsible for managing their investments into overseas markets. This is not the first time questions have been raised about the powers of financial regulators and the governance of private investment banks internationally. In April 2015 the DFSA ordered a record fine of US $8.4 million against Deutsche Bank's Dubai branch (DBDIFC) for inadequate controls over money laundering, the scale of the penalty reflecting "serious contraventions . . . including misleading the DFSA" following an investigation that was protracted by DBDIFC's failure to cooperate with the regulatory body. Outside the Middle East, earlier inJanuary 2016 Switzerland's oldest bank, Wegelin & Co, announced that it will close as a result of court action in New York leading to payment of $57.8 million to the USA in restitution and fines for helping US citizens to evade taxes.
Expert on banking and financial matters David Rice (until recently Head of Union Bancaire Privée Middle East and formerly CEO Private Banking, HSBC UAE, Qatar & Oman) observes: "In the industry we see Financial Regulators increasingly holding bankers directly and personally responsible in such cases and it is clear that all banks, wherever they may be, must exercise proper supervision over the activities of their affiliates and subsidiaries."
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