Austrian Court Convicts 9 in Bawag Fraud Case
Posted on: Saturday, 5 July 2008, 18:00 CDT
By From news reports
Nine people, including a prominent executive who fled to France in an attempt to elude justice, were convicted Friday of criminal charges in a major Austrian bank fraud case linked to the 2005 collapse of the U.S. commodities brokerage Refco.
The losses came from a series of failed bets using risky derivative investments held in off-balance sheet vehicles. Though the bets go back as far as 1998, they surfaced only in 2006 during U.S. investigations into the bankruptcy of Refco, an affiliate of the Austrian bank Bawag.
Claudia Bandion-Ortner, the Vienna federal court judge, found the defendants responsible for euro 1.4 billion, or $2.2 billion, in losses at Bawag.
Helmut Elsner, former chief executive of Bawag, was found guilty of breach of trust, fraud and false accounting and was sentenced to nine and a half years in prison. The judge also ordered him to repay Bawag euro 6.8 million in pension benefits.
"Helmut Elsner knowingly misused the authority to dispose of Bawag's funds entrusted to him," Bandion-Ortner said in the verdict read out in court. He thereby "caused financial damages of euro 1.72 billion."
Investments were made "without properly limiting the risk, in particular by failing to secure appropriate collateral," Bandion- Ortner said. "It was Helmut Elsner who directed and supervised everything."
The defendants also included the Bawag executive Johann Zwettler and the investment banker Wolfgang Flttl, who was based in the United States. Zwettler was given a five-year sentence.
Flttl received a 2 -year sentence, but most of that time was suspended, and he will serve 10 months behind bars, Bandion-Ortner said.
All nine defendants had proclaimed their innocence, and all but Flttl immediately filed appeals; Flttl's lawyer said he would take a few days to decide whether to challenge his conviction.
Bawag, or Bank fur Arbeit und Wirtschaft, lent Phillip Bennett, the former chief executive of Refco, hundreds of millions of dollars just before the brokerage filed for bankruptcy protection in October 2005.
Bennett was sentenced to 16 years in prison Thursday in the United States by a judge who denounced what he called the "staggeringly arrogant" greed of the white-collar criminals implicated in the case.
The verdicts Friday in Vienna came almost exactly a year after the trial began in an effort to bring to justice those thought to be responsible for Bawag's staggering losses in soured currency speculation deals in the Caribbean. The losses first came to light in March 2006.
Flttl was found guilty despite an emotional plea by his wife, Anne Eisenhower, who had offered to pay euro 5 million in court costs if the judge would spare her husband prison time.
The Austrian trade union federation owned Bawag at the time it incurred the losses. In 2006, it sold the embattled bank to a consortium headed by the U.S. private equity fund Cerberus Capital Management.
Elsner, 73, who served as bank director from 1995-2003, was the prime defendant in the case. He fled to France after Bawag's troubles became publicly known and was extradited to Austria in February 2007.
Originally published by AP, Reuters.
(c) 2008 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved.
Source: International Herald Tribune
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