How credit institutions and asset managers deliberately, illegally and criminally double-cash

Fraud or embezzlement?

In its ruling of 16.03.2011 (Ref. 9 U 129/10), the Higher Regional Court of Stuttgart very clearly points out that employees and board members can be guilty of breach of trust or fraud if they withhold kickbacks, retrocessions or refunds from their own customers. The court clarified that it is the task of bank or savings bank directors to organize their credit institution in such a way that the employees have the necessary knowledge . The judges did not accept the excuse of the defendant savings bank that it did not have its own legal department.

Aid by associations of banks and insurers?

The bank had relied on a circular issued by its association, which expressed a legal opinion in line with its desired view. The court did not accept this, as it considered that the obligation to examine the legal position lay with the bank itself and that the view expressed by the association would have been clearly inaccurate. Associations of banks and insurers are happy to provide their member companies with these convenient legal opinions and circulars in order to turn the actual legal situation into its opposite. It even happens that a written statement is elicited from a ministerial director, which obviously contradicts the will of the legislator and circulars of the ministry itself.

Recovery claims not statute-barred for up to 30 years

Nowadays, damages in tort are time-barred after 10 years. In old cases – only this year – claims can also be demanded up to 30 years back according to the old version of § 852 BGB. In contrast, it is irrelevant whether the illegal conduct of credit institutions and asset managers is already statute-barred under criminal law ( in part).

Open-ended investment funds and closed-end participations affected

For experts it is an open secret that with closed participations the customer pays a premium, for example 5%. Around the back, as so-called internal commission, in the folder hiddenly expelled as “costs of the own capital procurement, marketing costs etc.”, further two digit percentages flow regularly to the mediator. If then altogether 15% or clearly more of the investment are not used at all only for the investment, one hardly still wonders that approximately 2/3 of all such participation do not (can) throw off a yield, as it was still prognosticated in the folder.

Kickbacks, retrocessions or refunds also for investment funds

This game also works splendidly with open-ended investment funds. In the case of equity funds, the fund companies charge around 2% management costs, and in the case of bond funds usually around 1%: Up to more than half – depending on the outcome of negotiations between the fund company and the bank – then flows back to the investor’s “house bank” behind his back. This game runs so, year after year – for decades, at probably almost all credit institutions , and yet is illegal.

Clear case law on conflict of interest and duty of disclosure

Since 1900, the Civil Code has stipulated that the contractor must deliver or surrender to the principal everything he has received from the performance of his contract. Commission agents and business arrangers also find a corresponding obligation to deliver in the Commercial Code. Based on the clear legal position, the Higher Regional Court also assumes that the parties involved in the financial commission business here acted with at least conditional intent. Only a small match is needed for this powder keg to explode under the chair of one or the other savings bank or bank board member?

Sicilian conditions despite BaFin supervision: Does stupidity meet intent?

The naïve bank customer will be surprised why this business model of charging customers twice has not long been criticised and stopped by the state supervisory authorities. Simply informing the customer by his bank will hardly be able to eliminate the claim for damages – because the mere announcement of fraud or embezzlement to the victim, does not eliminate the illegality.

It is a trivialisation of the facts if banks think that the problem can be reduced to a mere breach of disclosure obligations. Not even in the case of the customer’s consent in contract forms may the bank hope for their effectiveness. And even reliance on individual agreements may be rejected by the court for taking unfair advantage of the bank’s superior legal expertise. In addition, however, there is always the question of criminal liability as soon as the customer files a criminal complaint.

by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm

by courtesy of

(published 2011-06-07)




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Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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