Antonio Flores’ Blog

My client has had a narrow escape: having been notified in early March by the courts that his property was to be auctioned by Danske Bank, at 11:00h of the 8^th of June 2011, we managed to obtain from the same court a ruling suspending the auction exactly…24 hours before (just like that one last call from the Alabama Governor…)

And prior to this, on the 27^th of May 2011, that is, just a few days before the auction, we are advised, through the courts (Document in PDF), that, unbeknownst to him, my client did indeed have €126,946.64 with Danske Bank, in some account in Luxembourg, which is what he had been wiring to them, over the years, to attempt to placate them and avoid being kicked out of his retirement home bought with his life-savings. One can only imagine the topnotch service Danske bank provided my client once they had abandoned Spain, not before trying to repossess a few homes in its wake. Danske Bank had all but forgotten about this money until the very end, and they have the cheek to say that the debtor had paid up this sum when, as a matter of fact, it had been blocked for years.

So if it was not enough stress, we added that extra bit to it by, unwillingly, choosing the latest of the possible dates (other than tomorrow) to set aside the sale at public auction instigated by Danske Bank against a 73 year-old retired mariner victim of an equity-release, who had been conned into believing that, by going with the biggest Bank in Denmark and contracting what is effectively a tax-evading financial product on his unencumbered retirement home, he would have a monthly payment coming his way, pretty much all the inheritance tax his daughters would be hit with waived or wiped out and all of it, without risking anything (apart from his home, his health and, potentially, his two beautiful daughters’ freedom, as they would have been eligible for prison sentences to be served at Alhaurin prison, 10 minutes’ drive from the foreclosed home, had they followed Danske Bank’s careful tax planning).

The Judge had no choice but to suspend the auction as, alongside these foreclosure proceedings claiming approximately €845,000 (which is what Danske Bank’s clever and optimized investing has lost, or rather, in my opinion, allegedly misappropriated), a criminal complaint had been lodged in Mijas against CEO Peter Staarup and his sales guys once based on the Costa del Sol, including an unregulated IFA hired by the bank.

These are some the promises made by Danske Bank on its prospectus:

• Exempt from Spanish Inheritance Tax : if the beneficiaries, on the death of the insured, are not residents in Spain, the capital will not be liable to Spanish inheritance tax.
• Investment Strategy: CAUTIOUS

If this is what the HMRC thinks about tax-avoidance schemes, what would they say about the Danske Bank Tax-Evasion Capital Assurance product?

Documents

• 21-03-2011 – Danske Bank Equity Release Lawbird Client Case – Auction Notice (PDF – 70Kb)
• 07-06-2011 – Danske Bank Equity Release Lawbird Client Case – Auction Judge Suspension Order (PDF – 72Kb)

Antonio Flores Litigation, Mortgages Danske Bank, equity release

The clients thought they’d be soon grinning from ear to ear once their application was approved, but the lenders knew that this ability to grin could be quickly challenged by grimace…

The equity release fiasco threatens to not only leave hundreds of deceived investors destitute, but also physically eliminate a few after enduring years of unbearable stress when faced with a prospect of financial ruin when retirement has been reached.

“I should have known better” is the statement I come across the most, and I fully agree but let me qualify this statement to add that yes, but when are told the truth and not lied to in such a vile manner as the Rothschild, Danske Bank, Sydbank/Nykredit, Landsbanki, Jyske etc., assisted by their cronies, did to pensioners, mostly from the United Kingdom. Interestingly, all these banks were paying commissions to unregistered and unregulated pseudo-financial professionals to bring in the punters on to the dock…

But enough of this now, let’s get with the positive side, because recent Supreme Court case law in Spain seems can make these contracts not worth the paper they are written on, and consequently, courts of first instance are now ruling in favour of consumers of financial products that were not only ill-advised, but also, ill-chosen, given that these products could have never been suitable for them due to their profile.

The case in particular refers to, again, hundreds of investors who signed what they thought were safe deposit contracts, and ended up losing almost all the capital. It was won by the creditors in the first instance, appealed by Caja Rural but thrown out and finally went to the Supreme Court, who could not be more in agreement with their subordinate peers. The latter ruling consists of 45 pages that I will try to condense, as it mainly refers to a number of legal arguments of difficult rebuttal. The excerpt below can accurately summarize, in a nutshell, what happened:

This product was sold and contracted in an indiscriminate manner by the branch offices of Caja Rural in the Valencia area, by the branch manager directly and without explaining the client the particulars of the product, inasmuch as it was not a typical fixed deposit but something different where they could lose part or all of the capital, especially considering that they were pensioners, agriculture-based workers, builders, etc. with a conservative mentality, averse to assuming risks and that had never invested in sophisticated financial products. Also, most of the customers would have not read the contracts as they would trust what was told to them, aloof of any damaging potential consequence but also, unable to discern the risk associated with this investment as the contract was not possible to understand unless they were financial-savvy.

The Supreme Court articulates the ruling on the basis of parameters that were breached by the bank:

1. Parameters based on financial services’ applicable legislation, which is deemed to have been breached.
2. Parameters based on civil and consumer protection laws, in particular, in respect of lack of consent of the client due to error, impregnated with negligence, during the formation of the contract, and breaches of consumer protections legislation referring to clarity, transparency and simplicity of contracts.

Although not part of this court ruling nor mentioned in it, and to get it out of the way, I confirm that all references are made to applicable Spanish law, and not Luxembourg, Swiss, Icelandic or any other convenience laws, as these banks were pretending to, according to article 90 of the Consumer Protection and other Complementary Laws Act 1/2007, which stipulates that any of the following will be deemed null and void:

1. Submission to Courts or Judges different to that of the address of the consumer, the place where the obligation is to be carried out or where the property is located.
2. Submission of the contract to a foreign law in relation to where the consumer undertakes to contract or where the business carries out its activity directed to promoting contracts of equal or similar nature.

The applicable law objection is easily dumped by on wayside, but requires explanation to avoid it being used to interfere in the more important nullity of the whole contract. By the way, all the above banks are susceptible of being fined for inserting clauses declared abusive, and consequently, null and void.

Theory of the “Customer Profile” or “Client Profile”

Considering that most of these contracts were signed prior to the 21st of November 2007, when the Mifid Directive was introduced in Spain, the Courts were guided by the Ley del Mercado de Valores y Código General de Conducta de los Mercados de Valores, which is the Stock Exchange Act and General Code of Conduct of the Financial Markets, in respect of the information to be supplied to consumers, and Royal Decree 629/1993 in respect to norms of conduct in the financial markets and obligatory registries.

The above legislation has developed what is known as the theory of the customer, or client profile. Article 79 of the Stock Exchange Act stipulated, prior to further amendments (this article was amended 3 times), among other points, that credit entities that act in the financial markets will have to observe the following principles and requirements:

1. Behave diligently and transparency in the interest of their clients and in the defense of the integrity of the market.
2. Develop an ordered and prudent administration, looking after the interests of the clients as it they were their own
3. Ensure that the clients had all the required information.

Act 47/2007 introduced article 78, differentiating between a “retail” client, as opposed to a “professional” client:

[..] including other banks or financial entities, or those of whom experience, knowledge or qualifications in the financial markets is presumed, to the extent of being able to undertake to make their own decisions over financial products and value their risks correctly. Business people will be deemed professional clients provided they have assets of at least 20m euros, of their annual return is over 40m (hardly a pensioner). Any client may request that he is considered a professional client, but the acceptance of this application will be made subject to the company assessment over the experience and knowledge of the client in relation to the operations or services he requests, ensuring that he is able to make his own decisions and can value the risks correctly.

When carrying out the assessment as above, the financial service provider will have to ensure that at least 2 of the following are met:

1. That the client has transacted a significant volume of operations in the financial markets, with a frequency (average) or at least 10 per quarter during the last 4 quarters.
2. That the sums invested exceed €500,000
3. That the client has held a professional job, for at least 1 year, in the financial sector that would require knowledge of the operations or services granted.

Any other client that does not come under the above will be deemed a retail client.

Realistically, how the hell were the “equity release” providers meant to have applied the above complex legislation if the agents used by them were not qualified in the European Union to provide this advice, were not regulated in Spain to provide this advice, and had little, or not knowledge, of Spanish language, without mentioning that, as a result of these grave, could have never understood the extent of these protection laws?

Furthermore, Annex to Royal Decree 629/1993 stipulates that all operators in the financial services markets must act, when exercising their activities, with impartiality and without placing their interest before those of their clients. Article 4 and 5 of this annex are particularly important, when construing the doctrine or theory of the investor profile:

Article 4:

The entities will request from their clients the necessary information for its correct identification, as well as information on its financial situation, financial experience, investment experience and objectives of the investment when the latter is relevant for the services that are to be provided.

Article 5:

1. The entities will offer and provide to their clients any information they have that may be relevant to adopting investment decisions, and will dedicate time and attention to ensure that the best product or service is obtained, in relation to the objectives pursued.
2. The entities shall have available any information systems updated so that the relevant information is provided correctly.
3. The information provided to the clients must be clear, correct, precise, sufficient and delivered on time to avoid an incorrect interpretation, stressing the risks undertaken on each operation, in particular high risk financial products, so that the client is in knowledge of the precise effects the operation entails. Any prediction must be correctly justified and expanded with the necessary explanations to avoid misunderstandings.

And so we reach article 7, that clearly stipulates a prohibition openly flaunted, still today, by entities, in particular Rothschild:

1. Entities will refuse any operation from non-authorized intermediaries, as well as those in which they have knowledge that the relevant legislation applicable to the former may be infringed.

Antonio Flores Litigation, Property, Scams Caja Rural, Danske Bank, equity release, Jyske Bank, Landsbanki, Rothschild, Sydbank/Nykredit

This is the question I was asked the other day by one of my clients who was about to show me the letter he had just received from his lender, the Danske Bank.

I am appealing to your empathy, and, to that extent, I want you to sit back and think, think how would you feel if after a life of hard work, when you were about to reap the deserved enjoyments of retirement and you had invested all your savings to purchase a hilltop beautiful villa on the Costa del Sol, the following happened (chronologically):

• You landed in Spain having sold your property in the country where you lived the last 60 years, cashed your pension and emptied your local bank accounts.
• You bought your retirement home with your life time savings, mortgage free.
• One sunny Saturday, one bloke, who happened to be a friend of a friend, turned up for lunch with a grin the size of a half-moon.
• After a few glasses of wine and after listening patiently to a rather boring recount of what you think is a vivid lifetime of experiences (might be for you, not for your new friend), this bloke, who you now think is a new friend, reacting with apparent anguish suddenly interrupts you to enquire whether your children are sufficiently protected against Spanish Inheritance Tax, which he conveniently sells as a happiness killer.
• Since by now, owing to the sun and the wine, you trust him, you open your ears and eyes as he explains that you are in serious danger of ruining your future, and that of your children.
• Avid to learn more, you enquire, and because he is in a hurry, he suddenly and quickly offers you a miraculous financial instrument to ensure that not only your unencumbered home is protected but also, you will have a monthly payment for life.
• By now you are well sober, listening to the wonder product that will protect your family plus give you some pocket money. Your friend tells you that he works for Danske Bank and that he can help.

[…]

A few years down the line

• Your friend has disappeared, your property has an embargo on it, Danske Bank is asking you to return €850,000 which you never saw and then you receive, by post, the following letter (click to open in PDF):

• Difficult as it is, you manage to read the letter, and you understand what it implies: your own bank, Danske Bank, without you ever writing to them, and who was entrusted with looking after, investing and providing a return on €1,030,000 (and which they managed to reduce by €850,000 thanks to cautious investing), which they extracted from your home on false pretences has the gall, in spite of it all, to let you know that you happen to have instructed them to debit your  (blocked) account with €23,703, in cover of “LEGAL COSTS” in favour of their own lawyers’ account in Spain so that these lawyers can…errr, sue YOU and repossess YOUR home, after having efficiently lost your life time savings in some volatile very-high-risk Luxembourg bond that was sold to you as cautious.

You have now discovered what the “Danske Bank Kick in the Bollocks” is all about!

Antonio Flores Litigation, Mortgages, Property bank repossessions, Danske Bank, equity release, financial miss selling in Spain, reverse mortgages

Surfing the web in search for information on the so-called equity-release fiascos, I came accross a very interesting article in respect of Danske Bank being sued by around 100 customers over the loss of 80% of their investments on an financial product that, allegedly, the bank sold as being low-risk.

According to the bank, the investment project was sold only to wealth customers, who were provided with adequate information about the risks. According to the financial experts at Oslo University, the project was presented to the customers as being far less risky than it actually was, and according to the lawyers dealing with the case, their clients would have never invested in the product if they had been fully informed of the risks.

I happen to have one client in the same situation, although with a distinct difference. He was not sold the product directly by the bank, but by an insurance broker based in Alicante, registered with the DGS (Insurance Directorate General) to sell life insurance policies.

The Facts of the Case

Who’s Who

• Danske Bank: a Northern European financial services provider, authorised by the Danish Financial Supervisory Authority. It is currently the largest bank in Denmark and is listed on the stock exchange.
• OFS Spain (Overseas Financial Services): An insurance services intermediary company based in Calpe. This company is not authorised by the regulator (CNMV) to operate in Spain as a financial advisor even though they call themselves Overseas Financial Services. They do sell, however, anything from aircraft to sweet potatoes and virgin coconut oil, and as of late, the principal sells light-bulbs.
• L.V. (OFS Principal): MLIA (Dip) and Financial Planning Manager, according to his business card. L.V. is registered by the DGS to operate as an insurance intermediator, given his prior registration with the Irish Financial Regulator, pursuant to the European Communities (Insurance Mediation) Regulations 2005, which gives effect in Irish law to the European Communities Insurance Mediation Directive. According to the regulator, insurance intermediaries can provide general, life and health insurance products to consumers, depending on the type of insurance companies from which they hold an appointment. And that’s about it. L.V. is not regulated or authorized to provide financial advice in either country.
• Inter Alliance WorldNet Insurance Agents & Advisors: An “umbrella” association that provides compliance and regulation for insurance business. It is registered in Cyprus and is registered to operate in Spain, through the appointed insurance brokers, as well as in the United Kingdom, but the FSA (Financial Services Authority) still recommends enquiring for further information, since they are “passported” EEA firms.
• Inter-Alliance Group plc (IAG Group): Mentioned in LV’s business card as part of some operating joint venture: after merging with Millfield Group plc, it went bust, not before being prosecuted by the FSA for regulatory irregularities that found the directors to have failed to exercise due candour, skill, care and diligence when providing what seemed a very important letter. They are no longer authorised by the FSA (Financial Services Authority), and have never been authorised in Spain, by the CNMV.
• Inter-Alliance International (IAI): mentioned in LV’s business card as part of some operating joint venture. It´s website is under construction. De Vere apparently bought it for 750.000 GBP back in 2005.
• The “wonder” financial product offered through LV and OFS by Danske Bank: The wording of the contract for this product is so complicated that I have sent it to a specialized financial-forensic expert to get some form of understanding (The Courts will also need it). Hereby some excerpts that will help understand why I can only mumble when reading the contract: Investment Focus: Funds-of-Funds, funds automates rebalancing and re-investments, Defensive low-duration bonds, Overweight credits (not people 🙂 ), Strategy: Cautious (I did understand this one!!), arrete de compte, pari passu (it’s got to be a different language), Actual Security Ratio or Requested Security Ratio, which means, according to Danske Bank, the weighted average of the Requested Security Ratio for each individual security in the pledged portfolio (self-explanatory, no doubt). Fidelity Funds Sicav (non-geared), Individual Capital Assurance with PanEuroLife S.A.- policy nos. DFD00009-DFD00013,Bonds DI GIbIdeksobAK, NykVar31E F3H 11…, and it goes on and on, till you contract perpetual insomnia.
• My client: A 72 year-old retired mariner owner of a Costa del Sol unencumbered retirement home, who was sold a product that would bring him an income, a cash lump sum (which he partly used to buy a little boat) and no IHT for his offspring. As a consequence of the fiasco, he was forced to sell the boat to try to mitigate the losses of the “Luxembourg wonder-bond”, has been now forced to sell his home and has had to start working again.

Brief Description of Events

• As one can imagine, the pitch was clear:
  

  Client: I am a bit concerned, rather apprehended, I don’t quite understand how this all works, it´s all pretty confusing, baffling…!

  Broker: But why? Don’t you worry, this is a simple over-the-counter equity release programme that, by mortgaging YOUR unemcumbered retirement home WHICH you bought with YOUR life savings, and taking an upfront draw-down for you to enjoy, will allow you to have a monthly income, reduce your IHT exposure and bring you happiness, it’s crystal clear, trust me, no word of a lie!

• Quoting the broker at the end of 2004 (excerpt from email by LV):
  

  “Neither Danske Bank nor ourselves stipulate that you must use a tax advisor to apply for the scheme – we always recommend clients obtain effect and individual tax advice before going into the scheme, but it is not a pre-requisite as Danske Bank are very experienced in this area and can guide you substantially (John Lundskov, in particular).”

• Quoting Danske Bank August 2010 (excerpt from email by Morten Runo Waaben):
  

  Dear Xx, As mentioned, I need to speak to you soonest possible. It is now critical that you get your property sold. Together we made an action plan on the 8th of June 2009 for selling your property in Alhaurin. At the meeting you mentioned that your boat was for sale as well, have you sold any?

  Is this Danske’s substantial guidance the broker was referring to?

• Quoting my client August 2010:
  

  Evening Morten, we are in the process of renting the house for one year to try and raise some money for living and we will move into a small apartment…

  At 72, and after having taken up a new job!

And what about the broker in 2010? Well, he is back selling Equity-Release schemes again, alongside light-bulbs and virgin coconut oil.

The (I)Legals of the Case

• OFS and LV are and were not authorised to offer in Spain financial or investment advice, other than life insurance policies, according to the DGS (Insurance Regulator) and the CNMV (Financial and Investments Regulator).
• Inter Alliance WorldNet Insurance Agents & Advisors are and were not authorised to offer in Spain financial or investment advice, other than insurance policies, according to the DGS (Insurance Regulator) and the CNMV (Financial and Investments Regulator).
• Danske Bank is authorised to operate in Spain. Danske bank however failed to comply with a number of provisions, namely that of employing registered and regulated individuals and companies to offer, market, intermediate, sell and follow up it´s highly volatile and complex financial Luxembourg-based products, pursuant to the  MiFID (Markets in Financial Instruments Directive). Danske Bank failed to ensure that:
  1. The intermediary individuals and companies used were registered as either a regulated ESI (Empresa de Servicios de Inversion) or an EAFI (Empresa de Asesoramiento Financiero), in accordance to the CNMV.
  2. The products were not sold indiscriminately, or sold without offering full, mandatory, unqualified and transparent information, exercising good judgement when disclosing the risk (get a bus driver to fly an F-16 and you´ll see what happens).
  3. The client’s profile was examined carefully so that he was offered only a financial product that was adequate or consistent with the aim pursued (a person aged 70 years of age with no prior experience in financial invesments, attempting to obtain a regular montly income, would have hardly gambled his life earnings away).
  4. The contracts used were pre-approved by the regulator (I have not found trace of compliance with this obligation).

The above failures have seen my client’s “cautious low-risk” bond investment dwindle from €850K to €350K thanks to the “conservative” approach of Danske Bank’s Luxembourg financial “advisors”. He has effectively now lost €500K of the equity he released. In addition to this, the promised income has converted into a mortgage-loan payment which he cannot afford and his retirement previously unemcumbered Costa del Sol home is now threatened by Danske Bank’s heavies who are forcing him to sell everything, or face legal eviction.

So where do we go from here?  Well, I suppose, take some time to read, examine and draw conclusions from the very recent and very lenghty Supreme Court ruling of the 17th of June 2010, that has forced Caja Rural del Mediterraneo/Rural Caja to refund over €3 million for selling complex high-risk products to retired/conservative investors without fully disclosing the associated risks.

Antonio Flores Litigation, Mortgages, Scams Danske Bank, equity release, Inter Alliance WorldNet Insurance Agents, Inter-Alliance Group plc, Inter-Alliance International