UBS Subsidiary Loses Final Appeal Over $600 Million Fraud Award

A Bermuda-based insurance unit now owned by UBS has 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 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.

Background and Context

The case centers 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. 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. However, 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 in 2023.

Key Figures and Entities

Patrice Lescaudron served as a relationship manager at Credit Suisse, orchestrating a nearly decade-long fraud scheme involving forgery and client theft before his discovery in 2015. According to court records, he used sophisticated methods to conceal his activities from bank supervisors while moving funds between client accounts to cover shortfalls.

Bidzina Ivanishvili, the former prime minister of Georgia and founder of the country's ruling party, suffered approximately $760 million in losses through the fraudulent scheme. His legal team pursued claims across multiple jurisdictions, resulting in significant judgments against Credit Suisse entities.

Credit Suisse Life (Bermuda) Ltd., now a subsidiary of UBS following the 2023 emergency acquisition, underwrote the life insurance policies at the center of the dispute. The company's appeal to the Privy Council represented its final opportunity to overturn the Bermuda judgment.

Legal and Financial Mechanisms

The Bermuda case focused on contractual obligations and fiduciary duties related to the life insurance policies. CS Life challenged the Bermuda courts' interpretation of its 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, though it didn't specify what the revised figure would be after this adjustment.

Parallel proceedings in Singapore's International Commercial Court resulted in a separate ruling 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. That court adjusted its award downward to avoid double-counting losses already addressed in the Bermuda proceeding.

UBS, which absorbed Credit Suisse in a rescue deal in 2023, has already set aside the required funds in an interest-bearing escrow account, according to court filings. A UBS spokesperson told Bloomberg the bank noted the decision but declined further comment.

International Implications and Policy Response

The case highlights ongoing challenges in international banking regulation and cross-border asset protection. The successful claims against Credit Suisse entities in multiple jurisdictions demonstrate how wealthy individuals can pursue legal action across various legal systems to recover losses from financial institutions.

UBS continues to grapple with legacy issues from its acquisition of Credit Suisse. In early August, the bank agreed to pay about $300 million to settle mortgage-related obligations inherited from Credit Suisse. According to Bloomberg Intelligence, UBS still faces potential costs tied to other Credit Suisse legal matters, including fallout from the 2021 collapse of Archegos Capital Management, with remaining cases potentially totaling roughly $500 million.

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. The case underscores the complex interplay between banking regulation, international sanctions, and cross-border legal enforcement mechanisms.

Sources

This report draws on court documents from the Judicial Committee of the Privy Council, Bermuda courts, and Singapore International Commercial Court, along with reporting by Bloomberg and public statements from the parties involved. Information about UBS's ongoing legal challenges comes from Bloomberg Intelligence analysis and corporate disclosures.