Bad Apple or Bad Bank?  Trader’s Role Central to $1 Billion Trial

(Bloomberg) -- A convicted interest-rate rigger is at the center of a 1 billion-euro ($1.15 billion) dispute between the owner of Banco Santander SA’s Madrid headquarters and Royal Bank of Scotland Group Plc.

Property investors Marme Inversiones allege that Philippe Moryoussef worked with rate setters at other banks to manipulate Euribor, hurting the real-estate firm because its interest-rate swap deal with RBS was tied to the benchmark. Moryoussef was sentenced in absentia in July to eight years for attempting to fix Euribor rates while working at Barclays Plc.

Marme’s London lawsuit against RBS started Wednesday. In September 2008, Marme borrowed 1.6 billion euros from a group of banks to buy Santander’s 250-hectare office complex, then-Europe’s largest property deal, the week before Lehman Brothers Holdings Inc. filed for bankruptcy protection.

Marme asked judges to terminate the interest-rate swap, saying that RBS negotiated falsely when it entered into the agreements. RBS attempted, through Moryoussef, to manipulate Euribor fixings to benefit its own derivative books, Marme said.

“The underlying theme in this case,” Marme’s attorney, Pushpinder Saini, said, is the “behavior of a rotten bank.”

Moryoussef has avoided prison by staying in France to avoid the trial. He left Barclays, which he felt wasn’t paying him enough, to join RBS in August 2007 as head of Euro derivatives trading. Unlike at Barclays, the trader never exerted influence on the bank’s own submissions team in the Netherlands, lawyers for RBS said in court filings.

“Moryoussef was something of a rotten apple in the RBS barrel,” David Quest, an attorney for RBS, said. “This is a case about a rogue individual.”

Marme, which is seeking 966 million euros, went into voluntary administration in 2014 after missing loan repayment deadlines and is subject to insolvency applications in Spain. The Santander Ciudad Financiera complex is now the target of a bidding war, according to media reports.

Marme argues that Moryoussef continued to discuss Euribor rates with traders at other banks, including his close friend, former Deutsche Bank AG trader Christian Bittar, who was himself jailed for five years and four months after pleading guilty to charges of fraud. A lawyer for Moryoussef didn’t return an email seeking comment.

“Make it happen so that the 3m doesn’t move any longer. I am sure you are going to give me a lovely surprise in the form of a fix at 78,” Moryoussef said in a message to Bittar in October 2007, referencing the three-month Euribor rate, according to the court filings.

When he worked at Barclays, Moryoussef may not have been as successful as Bittar, but he took a leading role in the mechanics of the fraud, communicating more frequently with colleagues at other banks, Judge Michael Gledhill said during his criminal case. He also tried to keep the misconduct quiet, repeatedly telling others not to mention anything, the judge said.

“The evidence against Mr. Moryoussef was overwhelming,” the judge said in July. “Greed was clearly his principle motive.”

RBS destroyed Moryoussef’s personnel file after Marme began its lawsuit, Saini said. The claim form was filed in December 2014.

The bank said in a statement that “RBS believes that there is no merit to this claim, which it will defend vigorously.”

The case is Marme Inversiones 2007 S.L. v. The Royal Bank of Scotland Plc and others, High Court of Justice, Queen’s Bench Division Commercial Court, CL-2014-000348

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