Two US judges admitted for processing last week lawsuits that consider that the Deutsche Bank was too easy on Biscayne Capital accounts, the financial group managed by Ecuadorians and accused of capital pyramiding and money laundering. One of the plaintiffs asks for $200 million from the bank of German origin.
The lack of proper controls, a certain degree of permissibility, not investigating when the red lights were turned on and even turning a “blind eye”are some of the observations that the plaintiffs included in their complaints accepted by the judges in New York and Miami.
Deutsche Bank has until mid-April to respond to the questionswhich are supported by bank contracts, email exchanges, testimonials from employees of the financial institution and the confessions of former Biscayne Capital executives.
The bank failed to get the lawsuits dismissed in which it is ensured that he allegedly actively collaborated in the Biscayne pyramid scheme and money laundering. According to a note from The Wall Street Journalthe institution’s spokesman assured on Thursday, March 31, upon learning of the second ruling, that “they will continue to vigorously defend themselves against these demands.”
The first indictment was filed in New York in 2020 and is related only to Madison Asset LLC, the Cayman Islands fund in which $7 million of foreign debt bonds of Seguros Sucre S.A. were invested and could not be recovered. In fact, the liquidation process of Madison in the islands began at the request of the Ecuadorian insurance company and the Panamanian brokerage Westwood Capital Markets.
The Madison liquidators are demanding from Deutsche Bank a contribution of “at least” $200 million, because they consider that this is the amount that was lost because the business was “conducted in a fraudulent manner”.
The second lawsuit was filed last year in Miami by some of the Biscayne Group companies, also in liquidation in the Cayman Islands, which issued the securities that investors bought. These funds were to finance the development of real estate projects, through the company South Bay Holdings LLC of Florida, of the same Biscayne group. This lawsuit does not talk about a specific amount.
Madison was the center of fraud
Both accusations place Madison Asset LLC, created in 2014, at the center of the Biscayne fraud, and the alleged involvement of Deutsche Bank stems from the fact that it managed the custody account of this fund. The bank’s relationship with the group dates back to 2008.
The liquidators even assured that Madison was created in the Cayman Islands in 2014 with the express objective of evading the controls of the US financial authorities. (Securities and Exchange Commission, SEC), which had begun to investigate the activities of Biscayne Capital and the South Bay. And those of its executives: the Ecuadorians Roberto Cortes Rueda and his children Roberto Cortes Ripalda and Juan Carlos Cortés Pablo, and Ernesto Weisson Pazmiño and Frank Chatburn Ripalda.
Madison served as broker and investment advisor for the Biscayne Capital group of companies. Shortly after, he hired Gustavo Trujillo Franco, who would later assume the direction and representation of him. Trujillo had worked closely with Cortes Rueda from a very young age, the plaintiffs noted. Uruguayan Fernando Haberer Bergson was also hired.
Trujillo and Haberer managed Madison’s relationship with Deutsche Bank. In the conversations to open the custody account and upon learning that issues were going to be made through various funds, the bank executive Floris Vreedenburg recommended that they not open any more accounts, according to the lawsuit.
Vreedenburgh explained that for each new account, the bank would have to follow a due diligence procedure. But if Madison handled them as “subaccounts” under Madison’s name, the due diligence process would be bypassed, the document adds. This executive had already opened other custody accounts for other group companies years before.
The first multi-market custody contract was signed in March 2014 between Cortés Rueda, on behalf of Madison, and Floris Vreedenburgh and Scott Habura, on behalf of the bank. Almost immediately, Trujillo signed a addendum with Paul Bishop and Anthony Toscano.
At the same time, the plaintiffs claimed, Deutsche Bank reviewed the securities offerings and distributed them to investors. In addition, both Deutsche and its Luxembourg subsidiary acted as issuing, paying or registration agents.
Both lawsuits detail the fact that since the Biscayne Group already had financial problems, it used the fresh money from the new investors to pay the maturities of the old clients. And it is insisted that Madison’s account was used to launder money from corruption, such as bribe payments from Petroecuador and Odebrecht. And for this reason, the liquidators consider that the executives of Deutsche Bank would have collaborated with the scheme, since they did not closely monitor the movement of the accounts.
The New York lawsuit states that Trujillo facilitated the transfer to the accounts of Madison of some $2.9 million profit from a Petroecuador contract and then forwarded at least $2.3 million to pay off certain customers and pay off other debts.
In the Miami one, the liquidators pointed out that since it was a title custody account, the money should enter to pay maturities only. However, the account was quite busy, with millions of dollars coming in and going out, and even credit card expenses being paid through the subaccounts. The New York lawsuit details Madison Asset’s 29 active sub-accounts, including that of Sentinel Mandate & Escrow, involved in the Odebrecht and Petroecuador bribery scandal.
An example cited in the Miami lawsuit relates that according to bank records, the issuance of Global Market Step Up (subaccount ending in 5094) caused $141 million to enter the Madison account, but of that amount only $698,000, less 0.5%, was used for the emission target. Of the remainder, $6 million was paid to Deutsche Bank in interest and $134 million was sent to other recipients, among them those that should receive payment for the expiration of other previous issues.
But that was not all. There were millionaire overdrafts, which should not have been allowed in this type of account. As evidence, there are several email exchanges between the executives and Trujillo, in which they always end up waiting for the Ecuadorian to solve the problem and they did not dare to close his account. On one occasion they even extended a recommendation to him to open another account for Madison in the Panamanian Credicorp Bank, of which they pointed out “the good business relations” that exist.
The plaintiffs dispute that in May 2016, when the sanction by the SEC for violations of the securities market by the Biscayne Group was made public, Deutsche Bank closed some of the group’s accounts, but not Madison Asset’s.
The bank defended itself by ensuring that it always followed normal procedures in handling the accounts.
In the end, the glass overflowed on June 15, 2017, when Deutsche Bank informed Trujillo that the custody contract was ending and the account would be closed on August 31 of that year.
These lawsuits that relate to the liquidation of funds in the Cayman Islands are in addition to the two criminal proceedings that are pending in New York. One is against Trujillo Franco and the other against Roberto Cortés Ripalda, Ernesto Weisson and Fernando Haberer for the bankruptcy of Biscayne. Chatburn has already been tried in Miami. (I)
Source: Eluniverso
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