Swiss Criminal Investigation into Barclays’ GoldenKey fail Moving Forward

By Teri Buhl: That Barclays criminal complaint I told you about this winter is still alive in Geneva courts. I heard from people involved in the case that after news of Barclays role in the Libor scandal broke the Swiss judge reviewing evidence brought by high net worth investor Philippe Rebourg took the case a lot more serious. Rebourg lost millions from a Barclay billion dollar structured investment vehicle, called GoldenKey, who failed in spectacular fashion in 2007 through his investment with Avendis Capital. Avendis ran a hedge fund called AEIF fund, which used about 50 percent of their investors assets to buy positions in GoldenKey and then levered up their stake in the SIV. Avendis was also a collateral manager for BarCap, who according to Rebourg’s claim; happen to get some easy money from Barcap to buy their over leveraged position in GoldenKey.

It’s a sordid tangle of relationships involving the America offices of BarCap, with executives like Kelsey Burr and John Parker playing the central role of evil banksters. Burr magically left the bank last year around the time Rebourg showed Barclays a slew of internal emails detailing his alleged role in the fraud. Burr and Parker built products called SIV-lite that would raise capital, borrow money in the short-term commercial paper debt market, and then invest all of this money in higher interest rate bearing products like mortgage-backed securities. The criminal claim tries to show, among other things, Barclays created these SIV’s to off-load their toxic mortgage products at the beginning of the financial crisis and sell them to unsuspecting investors via hedge funds they were friendly with. It’s a tale that highlight how every firm from raters to auditors involved in these high finance products somehow played a role to cheat main street investors.

After I broke news in January highlighting the case, the judge temporarily gagged people involved from talking with the media. But insiders came forward this week with an update.

“The Swiss judge has done a deep dive into the evidence and charges could be brought within a month,” said a person involved in Swiss criminal investigation.

The Swiss judge had to sort through multiple offshore entities BarCap set up within the GoldenKey transaction. Finding criminal liability is tough because the complexity of financial products like GoldenKey, which are very difficult to understand even for a specialized judge familiar with financial instruments, have been structured in order to make sure that all the potential legal liability was outsourced to some external managers, like Avendis Capital, or domiciled in different bankruptcy remote jurisdictions.

There are questions to how in the heck some raters gave Barclays’ GoldenKey a stellar rating towards the end of the SIV’s heyday in 2007. Why was S&P so nice to Barclays? Now thanks to Rebourg’s case the Swiss judge is looking at email evidence that shows a level of arrogance and RICO like behavior by Barclays. One such email written in 2007 by a Barclays executive who was talking about the bank arranging GoldenKey says “…we can always strong-arm S&P if they become difficult over the CIO position as we use them day in day out for rating so many of our deals.”

The case also involves international auditor BDO because they were assigned as a court trustee for the liquidation of AEFI fund. Rebourg told me last year he couldn’t figure out why BDO was reluctant to go after Barclays to recover funds for investors harmed by the banks role in the alleged fraud. It was especially confusing since they found out that BDO had also been invested, via one of their companies, in the AEFI fund. The hope was BDO would be motivated to help investors get every dime possible after they kicked the AEFI managers out. Then investors in AEFI fund found out one of the partners of BDO was member of the board of Barclays Switzerland branch and figured some favoritism towards Barclays was at play.

Rebourg told me last year, “The attitude of Barclays’ employee, under Bob Diamond tenure, has been one of reckless brinkmanship. Convinced that they were above the law, they have repeatedly plucked clients and investors alike without fear of the law.”

With public sentiment turned against the bank from their admitted role in Libor manipulation this would be an easier time for the Swiss to use their unique financial crime laws against Barclays. But for anything serious to come out of Rebourg’s criminal claim it will have to be Geneva Attorney General Michael Lauber taking the Swiss judge’s opinion of the claim and Rebourg’s evidence to heart if we are going to see criminal charges drive that fear into Barclays’ bad actors.

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