Rogue Credit Suisse Banker Goes on Trial Over Russian Shell Game

(Bloomberg) -- If it wasn’t for a bad bet on a small Californian company, the former Credit Suisse banker identified only as Mr. L until now might never have ended up in a jail cell just across Lake Geneva from his $2.4 million home.

Denied bail and private treatment for a series of ailments, Patrice Lescaudron has spent the last two years awaiting trial on charges of defrauding billionaire former Georgian Prime Minister Bidzina Ivanishvili and five other Russian-speaking clients out of hundreds of millions of dollars.

The 54-year-old Frenchman, whose trial opens Monday, has already admitted to running an increasingly frantic shell game with client cash to hide unauthorized trading gains and even bigger losses from about 2009 to 2015, according to his lawyer. But under Swiss law, the case can’t be settled without the consent of the victims, which include a retired Russian senator, two Moscow-based oil executives and a female canned-cocktail magnate.

Lawyers for Ivanishvili and the other victims say they’re hoping the two-week trial will help support their claims that the bank either knew or should have known about the rogue trades. Ivanishvili, who’s worth $5.8 billion according to the Bloomberg Billionaires Index, has filed suits in Singapore, New Zealand and Bermuda to try to force Credit Suisse to disclose documents related to investment vehicles through which Lescaudron moved chunks of the tycoon’s fortune.

Black Mark

Credit Suisse Group AG denies any wrongdoing, saying in a statement Thursday that Lescaudron, who faces a maximum sentence of 10 years, was a lone wolf who violated “internal controls and rules.” A two-year investigation has not revealed any indication that Lescaudron was helped with his criminal actions by colleagues, the bank said. Lescaudron’s lawyer, Simon Ntah, said his client has been cooperating with authorities since his arrest.

For Ursula Cassani, a professor of criminal law at the University of Geneva who’s following the case, whether or not Lescaudron acted alone is beside the point. Either way, she said, it’s a black mark for the Zurich-based bank.

“Whatever explanation the bank may give, for seven years this person managed to commit a lot of apparent crimes with huge amounts of money involved,” Cassani said by phone. “You cannot explain that away.”

The investigation has been a headache for Chief Executive Officer Tidjane Thiam, who took over Switzerland’s No. 2 bank in June 2015 with a mandate to pin future growth prospects on luring rich people’s money.

Three months later, the mismanagement of one of the bank’s largest accounts was exposed when Raptor Pharmaceuticals, a U.S. company that Lescaudron had secretly built up a massive stake in, announced the failure of a once-promising drug. The stock promptly plunged 37 percent, triggering more than $100 million in margin calls for Ivanishvili and other clients who say they were unaware of the exposure. Lescaudron was fired within a week.

Italian Holiday

Described by former colleagues as intelligent, introverted and hardworking, Lescaudron told Credit Suisse investigators in Geneva that he could have prevented the margin calls with more unauthorized trading but that he was too exhausted from years of deception and was trying to savor the last day of a badly needed vacation in Italy.

“I had had enough of this situation that had upset me so much,” he told the bank’s investigators shortly after Raptor’s plunge.

For much of his 11-year career at Credit Suisse’s wealth management unit, Lescaudron kept a low profile, moving between his Swiss home, Moscow hotels and an apartment in the Sardinian resort of Porto Cervo, a popular playground for the Russian elite. But his route to the discreet world of Geneva private banking was not a conventional one.

He was born in the French Atlantic town of Guerande in 1963, far from the bright lights of Paris. After attending a local high school, he headed to Lyon, where he got a degree in accounting, finance and management. His first jobs after graduating were with KPMG and Ernst & Young before landing a post with cosmetics maker Yves Rocher in 1993.

The closely held French company gave him his first taste of foreign business in 1997, moving him to Moscow to run its Russian operations. Five years later, he joined the Russian unit of Zepter, a purveyor of luxury household goods.

Lescaudron was a late convert to banking, joining Credit Suisse in 2004 at the age of 41. With his knowledge of Russia, he was tasked with handling a group of Russian clients that had a total of about 150 million Swiss francs ($130 million at the time) under management.

His career took off when his boss moved to a rival bank less than two years later, leaving him with the biggest clients in the region and swelling the amount of money he managed to at least $1.6 billion, the largest share of which belonged to Ivanishvili.

“This client trusted me totally,” Lescaudron told the bank’s investigators.

He told the bank that he was “honored” to be given that challenge and that up until the global financial crisis everything went well. “I had a lot of success in my affairs,” he said. “I was scrupulous and honest in my management of my clients and vis-a-vis the bank.”

‘How Did This Happen?’

The fraud started, he said, during the depths of the crisis in early 2009 when Ivanishvili reckoned the stock market had hit bottom and wanted to move $600 million of bond holdings into shares through Credit Suisse’s Singapore office.

A month later, he found out that his biggest client had missed out on a major rally because his colleagues in Asia never made the shift, so he resolved to make up for the lost profit by forging orders to buy stocks he thought were undervalued. Some trades were so successful, he said, that he was able to move some of the proceeds to other clients’ accounts to make up for losses elsewhere -- a practice he continued until the Raptor debacle in 2015.

It’s unclear how much, if anything, Lescaudron gained personally throughout all of this. Prosecutors allege that Ivanishvili wired $1.5 million of payments to Lescaudron in 2008 and 2009. Ntah, Lescaudron’s lawyer, declined to comment on this allegation, as did a spokesman for Ivanishvili.

Back in 2016, according to prosecutors, Lescaudron admitted to wiring about $3.5 million of client money to accounts he and his wife held, but Ntah said the money went both ways. Ntah said in a statement Thursday that his client has been working in “intense collaboration” with authorities to help the plaintiffs reduce their damages.

For all six plaintiffs involved in the proceedings, Swiss authorities, led by lead prosecutor Yves Bertossa, have focused too much on Lescaudron’s actions and not enough on Credit Suisse, according to Alec Reymond, a Geneva lawyer representing one of the Russians.

These Credit Suisse customers, who’ve already lost money, are being further short-changed, Reymond said. Officials in Geneva have sequestered more than $100 million of their assets, including a luxury estate on the French Riviera, for tentatively being classified proceeds of a crime.

“We feel the bank’s role should have been investigated, but Bertossa chose not to do so,” Reymond said. “How did that happen? That’s the missing story.”

To contact the reporter on this story: Hugo Miller in Geneva at hugomiller@bloomberg.net.

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net, Anthony Aarons at aaarons@bloomberg.net, Brad Cook

©2018 Bloomberg L.P.