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Monday, 16 June 2014

The Vestia case gets an unexpected follow-up: the Dutch justice department allegedly laid a distress upon millions in commission money, owned by financial advisor Arjan G. and stashed away in Switzerland.

It had been silent, with respect to the infamous Vestia case, very silent.

The Vestia case was the most high profile fraud case of 2012...  

Vestia, a ‘simple’, but very large (90,000 houses) Dutch building cooperative, lost €2.5 billion on interest rate swaps gone awry. This happened after the official interest rate made 'unexpected' 0.25% drops in December 2011 and January 2012, instead of going further up again after a few months of cautious rises.

The official Refinancing Rate of the European Central Bank
Chart by: Ernst's Economy for You
Data courtesy of: ECB
Click to enlarge
Initially, the Vestia case seemed to be a case in which all parties involved played such a controversial role, that it was almost ‘screaming’ to be thoroughly investigated: without prejudice and without the investigators pointing quickly at the most obvious guilty parties. However, after a few months everything had seemingly been brought back to the ‘bare essence’: 
  • The real vilains of this case were:
    • Arjan G., an independent financial advisor, who had bribed Chief Financial Officer Marcel de V. of Vestia with millions in commission money from Vestia’s derivative trades;
    • Marcel de V. himself, who had made (on his own(?)) all the decisions to buy the interest rate swaps and who had been bribed in various ways; with money and 'services rendered to him in person';
  • Erik Staal, the chairman (aka the ‘Sun King’ of Vestia) and his Board of Commissioners had neglected their duties to thoroughly check the financial obligations that CFO Marcel de V. entered into, on behalf of Vestia;
  • The accountants had been too late with signalling the emerging financial misery in which Vestia had entered;
  • The banks, which were involved in the Vestia case, had neglected their duty to guide and warn their customer, in order to prevent overcrediting.

    The banks defended themselves by stating that Vestia was a professional institution, of which professional investor's knowledge and likewise behaviour
    could be expected.

And that was about it for the Vestia case in the public eye...

The case slowly faded away from the attention of the general public, in favour of new financial scandals and controversy (SNS Reaal, Liborgate).

The only visible result that the Vestia case eventually had, was that the Dutch Second Chamber of Parliament recently started a Parliamentary Enquiry into the ubiquitous financial issues, alleged fraudulent behaviour and bad management, which surrounded Vestia and other building cooperatives in The Netherlands.  

This very enquiry currently takes place in The Hague, but to these eyes it seems to suffer from superficiality and uninformedness about the subject, with on top of that the blatant anger and prejudice of the enquirers. 

Instead of trying to dig up the truth, the enquirers want to address the public outrage at the protagonists, who in general suffer from applicable amnesia and aggrievance about the way they are treated by the enquiring commission. 

This is the best recipe to find nothing. Further, the investigation into the Vestia case seemed to be at a dead end…

However, this morning ‘pitbull’ reporter Bart Mos of newspaper De Financieele Telegraaf printed a remarkable article, in which he stated that the Dutch Justice Department had laid a distress upon milllions in commissions, owned by financial advisor Arjan G. This money had been stashed away at Swiss banks in 2012; allegedly by the father of G.

Here are the pertinent snips of this article:

The [Dutch] Justice Department laid a distress on approximately ten million euros in Switzerland, which financial advisor Arjan G. – currently suspected of fraud – earned with the sale of speculative banking products to building cooperative Vestia.

Arjan G. used half of the €20 million in commission money, which he earned from the banks, to bribe former Chief Financial Officer Marcel de V. of building cooperative Vestia. He has allegedly stashed the other half on a Swiss bank account.

This is confirmed by various sources, close to the criminal investigation into the million euro fraud at Vestia. The Dutch justice department tries to recover this money for The Netherlands, through a request for legal assistence. According to Willem Koops, solicitor for defendant Arjan G., his client gave full disclosure: “to Vestia, as well as the public prosecution”.

Today, both Arjan G., as well as the bribed CFO of Vestia Marcel de V., will be grilled by the Parliamentary Commission ‘Building Cooperatives’. 

Marcel de V. allegedly received €9 million in bribe money from G., in exchange for him purchasing the interest rate swaps on behalf of Vestia. [The combined purchases of interest rate swaps amounted to a staggering total of €40 billion, according to Het Financieele Dagblad - EL]. Both will be prosecuted for this crime.

Personally, I am very pleased that this event brings back the attention to the Vestia case. This case has been a blatant failure of litterally every executive and supervisor inside and outside this giant building cooperative: CEO, Board of Commissioners, accountants / auditors and every other official / government supervisor being involved in Vestia. 

Besides that, the disclosure of this case opened the floodgates for a host of other derivative trades gone awry, at other institutions: building cooperatives, universities and educational institutions and even Small and Medium Enterprise companies.

What the Vestia case really deserves is a proper investigation into the role of especially the banks, which have been directly involved in this fraud case:
  • With derivative trades to the tune of €23 billion at the end of 2011, the overcrediting of Vestia has been really mindboggling. How could this come this far…?!
  • As the chart in the beginning of this article shows, the interest rate change of early 2012 had been peanuts in comparison with the vertigo-spurring rate drop of early 2009.

    Why did this 0.5% rate drop cause so much havoc at Vestia's portfolio and why had the building derivative not been warned earlier: the 0.5% refi rate drop of late 2011 / early 2012 took place in two stages of each 0.25%?
  • The commission payments, which took place after (or before(?)) the purchases of the interest rate swaps in the Vestia case, had allegedly been ten times higher than usually, in comparable cases.

    What light does this shed on the role of the banks

The Vestia case deserves to be on our retinas in the coming months, as it has been one of the most tell-tale cases of the havoc that ignorance, bad supervision, fraud and executive ‘Sun King’ behaviour can cause in a small country, like The Netherlands. It should not sink into oblivion again.

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