Ex-Greensill Executives Charged in Germany Over Bankruptcy

German prosecutors have charged two former board members of Greensill Bank AG with bankruptcy crimes and false accounting over their roles in the 2021 collapse of the lender, marking a significant development in the sprawling investigations into the failed supply-chain finance giant. A member of the bank's supervisory board was also indicted in the case, which centers on a €2.18 billion refinancing deal for Sanjeev Gupta's steel empire that prosecutors say triggered the bank's demise.

The charges represent the first criminal prosecutions in Germany related to Greensill's spectacular implosion, which sent shockwaves through global financial markets and exposed regulatory failures across multiple jurisdictions. The case highlights how the bank allegedly concealed risky lending to Gupta's companies by misrepresenting them as low-risk trade receivables, while attracting retail deposits with some of Germany's highest interest rates during an era of ultra-low yields.

Background and Context

Greensill Capital transformed from a small trade finance startup into a $7 billion-valued unicorn with backing from SoftBank Group Corp. and General Atlantic, revolutionizing supply-chain finance by packaging corporate invoices into short-term investments. The firm's rapid growth was fueled by its ability to provide financing to companies that struggled to access traditional banking services, including Gupta's sprawling GFG Alliance.

The business model relied heavily on partnerships with major banks, particularly Credit Suisse, which created $10 billion of investment funds that bought Greensill's financial assets. However, the house of cards collapsed in March 2021 when Greensill's insurance coverage was withdrawn, revealing that some of the assets it had sold were backed by future revenues that might never materialize.

Key Figures and Entities

According to the Bremen prosecutors' statement, the two unnamed former board members allegedly violated banking regulations during the 2019 refinancing of Gupta's acquisition of European steel mills. The deal accounted for more than half of Greensill Bank's loan book, creating dangerous concentration risks that were allegedly concealed from regulators and investors.

Sanjeev Gupta's GFG Alliance operates steel plants across Europe and has been the subject of parallel investigations by the UK's Serious Fraud Office since 2021 for suspected fraud, fraudulent trading, and money laundering. The UK government seized control of Gupta's British steelworks in August 2023, citing national security concerns amid the financial turmoil.

Meanwhile, Greensill founder Lex Greensill is fighting director disqualification proceedings in the UK, while the firm's administrators have filed a civil claim against him seeking to recover alleged preferential payments. Former UK Prime Minister David Cameron, who served as an adviser to Greensill after leaving office, faced intense scrutiny over his lobbying activities on behalf of the firm.

Legal and Financial Mechanisms

Prosecutors allege that the executives obscured the true nature of the Gupta-related loans by recording them in trading books rather than loan portfolios, making them appear as low-risk purchase of claims rather than the highly concentrated credit exposures they actually represented. This alleged accounting manipulation allowed the bank to continue attracting retail deposits despite its precarious financial position.

The German investigation initially targeted 14 suspects but ultimately resulted in only three indictments, reflecting the challenges prosecutors face in proving criminal liability in complex financial cases. The charges of bankruptcy offenses and false accounting carry significant potential penalties under German law, including fines and imprisonment of up to several years.

International Implications and Policy Response

The Greensill collapse has exposed significant gaps in international financial regulation, particularly regarding the oversight of supply-chain finance and the monitoring of credit risk concentration. European regulators have since strengthened requirements for banks' reporting of large exposures and enhanced scrutiny of complex financing arrangements.

In Switzerland, the collapse triggered a major overhaul of the rules governing the creation and distribution of investment funds, while UK regulators have faced criticism for failing to adequately supervise Greensill's British operations despite multiple warning signs. The case has also led to increased scrutiny of revolving door practices between government and the financial sector.

Sources

This report draws on the Bremen prosecutors' official statement, court filings from Greensill's insolvency proceedings, and prior reporting by Bloomberg News on the investigations. Additional context comes from regulatory announcements by the UK Financial Conduct Authority and the Swiss Financial Market Supervisory Authority regarding the post-collapse review of financial oversight mechanisms.