Highly-leveraged investments,
that once bloomed, are now embroiling private banks in a range of
legal actions. A string of court cases worldwide, ranging from
disputes about margin calls to one of the first hearings in the
Dubai International Financial Centre, throws light on how
speculative investments became.
Go deeper with GlobalData
Highly-leveraged investments, which
clients entered through their private banks during the boom years
up to 2008, are coming back to haunt their financial advisers, in
the form of a steady stream of multi-million dollar lawsuits around
the world.
In a number of cases, clients
allege their banks failed to advise them of the risks involved in
margin-based trading in a range of speculative deals, often
involving foreign exchange trading, while in others, the collapse
of investments to junk status is the centre of contention.
UBS face clients
in account closure suit
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By GlobalData
• In Singapore,
UBS is suing two clients, Ng Kok Keong and wife
Yow Sin May, for S$9.3m ($1.7m) in debt, interest and costs after
it closed the couple’s account two years ago.
The couple are counter-suing for as
much as S$9.4m in losses, interest and damages, claiming that the
“grossly negligent” behaviour of their adviser caused them to lose
their money.
UBS counsel told the High Court
that the couple had failed, despite repeated requests, to maintain
a minimum sum for them to continue private banking services. Ng and
his wife had borrowed heavily from the bank’s credit services to
buy currency products in a highly-leveraged deal.
Ng’s counter-claim contends that
UBS had breached its duty of care and contract, explaining that he
was inexperienced in financial markets and often relied on UBS
advice.
He further charged that his adviser
failed to promptly close his positions when instructed to do so,
causing him and his wife more losses.
UBS counsel argued that as Ng had
held a non-discretionary account, it meant he made his own
decisions and took his own risks.
It would be “ludicrous” to suggest
UBS had a duty to not let his account reach near close-out because
it “essentially means he’ll never lose money”, its counsel said.
The hearing continues.
Deutsche Bank in battle
over FX account
• In another case in Singapore, the
Court of Appeal has allowed the plea of a retired lawyer, David Lam
Chi Kin, who sued Deutsche Bank for allegedly
reneging on an agreement covering his foreign exchange account.
The court ruled that since currency
markets could be extremely volatile, a 48-hour grace period was a
valuable right to a sophisticated customer like Lam.
This would give him more time to
decide what to do next when a margin call was made. Without this
grace period, Lam might not have exposed himself to such large
foreign exchange contracts.
Originally, Lam was ordered to pay
Deutsche in Singapore an outstanding $1.1m after the bank closed
out his currency positions at the height of the credit crisis in
October 2008.
Lam contended in his lawsuit that
the bank was wrong to have made margin-call transactions in October
2008, as he was entitled to a 48-hour grace period.
Lam claims he had asked the bank
not to close his foreign exchange positions but the bank disagreed
and closed out all his transactions. Deutsche Bank said the bank
respected the court’s ruling and had no further comment.
Bank of China
manager in mini-bond misselling case
• In Hong Kong, a manager of the local unit of
Bank of China (BOC) has pleaded not guilty to nine
counts of fraudulently persuading clients to invest in mini-bond
structured products issued by Lehman Brothers, the US investment
bank which collapsed in 2008.
BOC Hong Kong manager Cheung
Kwai-kwai told a customer who bought structured products linked to
Lehman that he would get back the principal, prosecutors said.
Cheung sold the products, which
lost their value after Lehman’s 2008 bankruptcy, to unsophisticated
investors, Hong Kong’s District Court was told.
The 47-year-old banker pleaded not
guilty to nine counts of fraudulently or recklessly inducing others
to invest a total of about HK$787,776 ($103, 400) in the securities
between 2005 and 2008.
Société Générale wins HK
margin shortfall dispute
• Meanwhile, Société
Générale won a Hong Kong court order forcing a former
private banking client to pay back about $180,022.
Mike Panjwani, a British
businessman living in Singapore, ignored his banker’s request for
margin payments on his trading accounts, leaving the bank entitled
to close out his positions after “reasonable” attempts in informing
him, Judge Anthony To said in his judgement.
Panjwani’s claim that his
relationship manager had said the margin shortfall would not be an
issue until the businessman hesitated to pay S$15,000 into the
banker’s personal account was dismissed by Judge To.
The former client also failed to
transfer S$75,000 to top up his accounts after promising to do so,
according to the ruling.
The businessman alleged in his
counterclaim that Société Générale had no right to sell his assets
as he wasn’t given reasonable notice.
Panjwani also claimed he didn’t pay
the S$75,000 due to the bank’s error.
Bank Sarasin-Alpen accused
of misrepresenting risky investments
• In the United
Arab Emirates, a wealthy Kuwaiti family has won the right to get a
full hearing into whether Bank Sarasin-Alpen
misrepresented risky investments it had bought as safe.
Rafed al Khorafi is seeking damages
totalling $225m from Bank Sarasin-Alpen, triple the $75m amount the
family alleges the bank lost on investments.
A three-member appeals panel
dismissed Bank Sarasin-Alpen’s argument that the al Khorafis had
not made their claims under the correct Dubai International
Financial Centre statutes.
The panel also reinstated claims of
negligence and misrepresentation that another judge dismissed in
July while rejecting an attempt by Bank Sarasin-Alpen to strike out
breach of contract claims.
Bank Sarasin was reported as saying the ruling was a matter of
procedure and the courts could now begin to address the substance
of the case.
