Paris: Officials from the Luxembourg affiliate of Landsbanki and the former boss of the Icelandic lender are to face criminal charges of defrauding French clients with a contested mortgage scheme, a source close to the case said Tuesday.
The source said an investigating magistrate has sent the case to criminal court on evidence wealthier Landsbanki Luxembourg clients were duped by "false information" about an offer to use money from new home mortgages to finance advantageous market investments.
According to the findings, from 2006 to 2008 Landsbanki Luxembourg proposed affluent customers a combination of cash and lucrative investment positions in exchange for new home mortgages. Returns from the investments were intended to cover payments on mortgage reimbursements -- which were only due in full at the end of the loans.
But the investigation sent to criminal courts September 24 by magistrate Renaud van Ruymbeke says details of the scheme provided to clients were "corrupted by false information about the bank`s solvency and (investment) management methods," and that the offer was principally aimed at providing liquidity-strapped Landsbanki Luxembourg with funds.
When the 2008 financial crisis hit -- requiring the nationalisation of several stricken Icelandic banks including Landsbanki -- the bankruptcy of the Luxembourg affiliate led liquidators to demand immediate loan reimbursement from hundreds of French clients who had participated in the mortgage scheme.
Over 110 of those customers filed suit against the bank for having contracted to deliver financial returns it didn`t produce, and failing to verify the ability of borrowers to repay loans in the event of trouble.
Several former bank officials and investment managers have been ordered to stand trial in the case, including former Landsbanki chairman Bjorgolfur Gudmundsson, who van Ruymbeke considers directly linked to the Luxembourg unit`s activities.
"The mother company closely followed what its affiliate did," van Ruymbeke`s finding states, describing the "unreliability of the bank`s high-risk development, organised and conducted in a rash manner in the exclusive interests of its shareholders and managers."
Gudmundsson, the former owner of English football club West Ham who at one time was on Forbes` list of wealthiest people, is cited in the investigation as a "primary beneficiary" of the Landsbanki Luxembourg mortgage activity.
Attorneys for French civil plaintiffs -- some of whom were wiped out -- cheered the case being sent to criminal court.
"The bank has refused any negotiation since the beginning," says Edouard de Lamaze, a lawyer for former clients.
"Being sent to face criminal trial is a result of the bank`s own intransigeance."