The court of the Dubai International Financial Centre (DIFC) has started the non-voluntary winding up of Bank Sarasin Alpen (ME) under the DIFC Insolvency Law following the bank's failure to pay a $35m fine in penalty damages to a Kuwait family for mis-selling structured products.
The Dubai court published last week (May 2) an order following a request filed by the bank's creditors, a wealthy Kuwaiti family seeking compensation in a case involving the sale of $200m in structured investment products between 2007 and 2008 by Bank Sarasin Alpen, which has now ceased operations.
The court order states that the 'petitioners claim that the respondent is insolvent and unable to pay its debts' originating from a 2009 case brought by the 'petitioners against the respondent in relation to structured investments' and requests that the 'respondent be wound up' under the DIFC insolvency regulations.
Bank Sarasin Alpen was a joint venture of between Switzerland's Bank Sarasin, which owned a 60% stake and Alpen Corporation, a Dubai based financial services company chaired by Rohit Walia (pictured), which owned 40% of the joint venture. The joint venture ceased operations in 2014, has since been discontinued and is no longer linked to J Safra Sarasin which sold its stake to an undisclosed buyer last year.
This case began in 2008, when members of Kuwait's Al Khorafi family were referred to Bank Sarasin Alpen (ME) for investment advice, and were recommended 'higher yielding capital guaranteed' products which would pay a minimum guaranteed interest rate at maturity. Acting on this advice, and facilitated by the company, the Al Khorafi family invested US$200m, much of it borrowed against their extensive property investment portfolio.
According to the DIFC, the products were in fact 'highly risky leveraged investments' linked to the performance of various underlying indices and Bank Sarasin Alpen forged documentation which classified the Al Khorafi family as experienced investors.
'When challenged over this misrepresentation, Bank Sarasin Alpen continued to assert that the Al Khorafis had themselves written the mentioned statements,' stated the court documents. 'When challenged that the forms made absurd claims, such as that Mr Rafed Al Khorafi, who was only 42 years old at the time, had 40 years of banking experience, Bank Sarasin Alpen maintained that the forms had been completed based upon the information received from the Al Khorafi family.'
The original trial was heard before Sir John Chadwick, a former Judge of the Court of Appeal of England and Wales, and the (now recently retired) Deputy Chief Justice of the DIFC Courts in Dubai, in 2014.
In a scathing judgment delivered to Bank Sarasin Alpen, Justice Chadwick ordered the bank to pay $10.4m in compensation, which was followed by another order in 2015 to pay $35m to three members of the Khorafi family, while Bank Sarasin, which has subsequently merged with the Swiss bank J Safra, was ordered to pay $24.6m
The two banks had filed an appeal against the liability finding which lead to record damages being awarded against them which was heard by the DIFC Court of Appeal in September 2015 with the judgement issued on March 3, 2016. In November 2015 the DIFC Court determined that the two banks should pay the Al Khorafi family more than US$70m to cover financial losses resulting from the sale of US$200m structured investment products between late 2007 and early 2008. Bank J. Safra Sarasin immediately paid its share of the damages into court pending the hearing of its appeal against the award of damages.
However, Bank Sarasin-Alpen (ME) Limited did not pay its share and sought a stay of the order to pay the damages which was denied on 18 January 2016. Bank Sarasin-Alpen (ME) Limited was ordered to make a similar payment into Court by 1 February 2016 which it failed to do.
Lawyers for the Al Khorafi family said in a statement that Bank Sarasin Alpen had fought the judgment with a series of unmeritorious and inconsistent arguments on liability, all of which have been rejected.
"Our clients are incredibly disappointed that an organisation which held itself out to be a responsible financial institution, called itself a Bank and claimed to be affiliated to a reputable Swiss Bank whose products it marketed, has refused to pay the amounts awarded against it," stated the law firm. "We are particularly concerned that those behind Bank Sarasin-Alpen, who benefited enormously from selling products to customers in this region, are prepared to walk away from their responsibilities. We will now look extremely closely at the actions of the directors of this company and will carefully investigate the actions of the new companies that Alpen Corporation Limited and Bank J. Safra Sarasin Limited have set up."
The claimant will still seek to enforce the next steps in securing the remaining sum from Bank Sarasin-Alpen Middle East Limited, through the DIFC Courts. Calls to Alpen Capital Group of which Rohit Walia is executive vice chairman and chief executive, were not returned by press time.
Click in the link to read the case's background.
DIFC court charges Bank Sarasin-Alpen with miss-selling