A Bermuda-based insurance unit now owned by UBS lost its final appeal against a massive damages award connected to one of the banking industry's more notorious internal fraud cases.

The Privy Council in London dismissed most arguments from Credit Suisse Life (Bermuda) Ltd. on Monday, leaving the liability finding intact while ordering a modest recalculation of the $600 million-plus award to Bidzina Ivanishvili, the billionaire founder of Georgia's ruling party.

The decision caps years of litigation across multiple jurisdictions over losses Ivanishvili suffered at the hands of Patrice Lescaudron, a relationship manager who ran a fraud scheme for nearly a decade before getting caught in 2015. Lescaudron was convicted in a Swiss court in 2018 for forging signatures and stealing from clients to cover shortfalls in other portfolios.

Parallel Verdicts Pile Up Across Jurisdictions

The Bermuda case focused on two life insurance policies Ivanishvili funded in 2011 and 2012 with roughly $750 million in cash and assets, kept separate from his other Credit Suisse accounts. A Bermuda chief justice ruled in 2022 that CS Life had turned a blind eye to Lescaudron's activities, awarding $607 million in damages.

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Singapore's International Commercial Court issued a separate ruling in 2023 ordering Credit Suisse Trust to pay $461 million, finding the bank failed to act in good faith and didn't adequately protect Ivanishvili's assets from Lescaudron's reach. That court adjusted its award downward to avoid double-counting losses already addressed in the Bermuda proceeding.

UBS is still paying for the rescue of Credit Suisse several years ago. In early August, for example, it agreed to pay about $300 million to settle mortgage-related obligations inherited from Credit Suisse, marking another step in the Swiss lender’s effort to resolve legal issues stemming from its emergency takeover of its former rival.

Moreover, UBS still faces potential costs tied to other Credit Suisse legal matters, including fallout from the 2021 collapse of Archegos Capital Management. Bloomberg Intelligence estimates that the remaining cases could total roughly $500 million.

Narrow Victory on Timeline Dispute

CS Life challenged the Bermuda courts' interpretation of its contractual obligations to Ivanishvili, arguing judges applied too broad a timeframe for calculating damages. The Privy Council sided with the bank on one technical point, ruling that damages should start from when the life policies were initiated rather than when assets were transferred.

The court didn't specify what the revised figure would be after this adjustment. UBS, which absorbed Credit Suisse in a rescue deal in 2023, has already set aside the required funds in an interest-bearing escrow account.

A UBS spokesperson told Bloomberg the bank noted the decision but declined further comment.

Questions Linger Over Payment Timing

The fraud came to light in 2015 when two Credit Suisse executives called Ivanishvili's team to report that Lescaudron had been hospitalized and they'd discovered a major shortfall triggered by a margin call. An audit revealed Ivanishvili's portfolio, reported at $1.2 billion, was actually worth $440 million.

Credit Suisse maintained throughout Lescaudron's criminal trial that he operated alone and concealed his activities from colleagues and supervisors. Courts in both Bermuda and Singapore rejected that characterization, finding the bank's systems and oversight fell short.

The case was one of several scandals that eroded investor confidence in Credit Suisse before its collapse and forced merger with UBS. While the Privy Council decision settles the Bermuda litigation, questions remain about when and how payment will be made given sanctions against Ivanishvili and ongoing geopolitical complications.

Source: Finance Magnates