British investor sues Belgian bank for ‘churning and fabrication’

KBC faces £44m losses if millionaire wins his Dutch court case against it and two subsidiaries

By Simon Evans
Sunday 08 February 2009 01:00

A millionaire British investor is suing KBC, one of Belgium’s biggest banks, for tens of millions of pounds, amid claims of commission churning, account fabrication and a cover up at one of the bank’s subsidiaries.

KBC recently received billions of euros from the Belgian government to cover catastrophic losses racked up on complex investments. It is alleged that a subsidiary “engaged in in-house trading to earn commissions”, known as churning, while the bank liquidated derivative positions for their client, resulting in considerable losses.

It is claimed that open positions in gold futures were also closed by the bank and, with the price of gold soaring, that could involve investor losses.

The writ, filed in Amsterdam on behalf of property tycoon Raman Dhir, also alleges that KBC, through its Dutch subsidiary, Theodoor Gilissen Bankiers (TGB), attempted a series of “cover up violations of regulations”, including a €¤3.7m margin call on derivative positions that was later withdrawn followed by an apology.

The writ also claims that “credit lines were fabricated” to cover up internal failings within the bank. It’s alleged that the bank’s subsidiary failed to charge initial and variable margins to the client which is a basic rule of trading.

The writ also suggests that KBC’s subsidiary lied about the reasons for the resignation of a client account manager, who quit “because of discontent with the way the bank was operating in this matter.” Mr Dhir belives that KBC, lead by chief executive Andre Bergen, could be pursuing legal proceedings against a whistleblower to the tune of millions of euros.

The alleged violations have been reported to the Dutch financial regulator, AFM.

If Mr Dhir’s claim proves successful, senior executives at KBC and its subsidiaries, KBL and TGB, could face both civil and possibly criminal repercussions. KBC faces potential losses of up to€¤50m (£44m) if it loses the case. A spokesman said: “The client in question has now apparently taken the matter to the media. It is the group’s duty to defend its reputation in view of such accusations, which have no resemblance to the facts of the matter as established by the bank, and which are being rejected by both KBC and Theodoor Gilissen Bankiers.”

He added: “The case is currently being heard before the Court of Amsterdam. However, since the bank has a strong case and solid arguments, KBC is confident of the outcome of the legal proceedings. To avoid influencing these proceedings, KBC will refrain from making any further comment or statement to the press.”

KBC is best known in the UK for its ownership of the city brokerage Peel Hunt, which it bought in 2001. There is no suggestion of any wrongdoing at the firm’s UK business.

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