A customer of Bank Leumi UK plc filed a $50 million lawsuit against the bank. The amount equals 30% of the bank's shareholder's equity of $160 million. The customer is counter-suing the bank, which earlier filed a €13 million lawsuit against him for derivatives activities. The case was recently concluded, and a ruling is pending.
Linda Joy Wachner claims that Bank Leumi UK failed to meet regulatory requirements by classifying her as a capital market professional, instead of an ordinary private customer. She claims that bank representative subsequently tempted her to buy exotic derivatives, presented her with inaccurate or false information with regard to the transactions, causing her harm and losses.
Bank Leumi UK filed a statement of defense and disclosed the lawsuit in its financial report for the third quarter. The report means that the bank's legal advisors believe that there is 20-70% chance of winning, or in legal terms "reasonably possible".
The statement of claim says that in 2005-07, various traders managed Wachner's investments in securities through Bank Leumi USA Inc.. After losing $350,000, Wachner asked to make the investments herself. All the investments were in options and plain vanilla products of the simplest kind. She continued to lose money.
In March 2008, Wachner claims that Bank Leumi UK representatives persuaded her to invest in especially risk exotic derivatives, because they were a great low-risk opportunity. She claims that she was told that these instruments strongly suited her because they did not require frequent trading activity as is the case with plain vanilla products.
Wachner claims that the bank's representatives failed to explain to her the latent risk in these products, failed to explain to her that traders in these products were usually sophisticated firms and that they urged her to invest during a very dangerous time in the market - precisely on the eve of the crisis - and when all her investments in the five preceding years were in quite simple products. As a consequence, Wachner lost a lot money by October 2008.
Bank Leumi UK and Bank Leumi USA are both wholly owned subsidiaries of Bank Leumi (TASE: LUMI). Bank Leumi UK CEO Lawrence Weiss took up his post after the affair. His predecessor, Michael Friedman, was fired because of irregularities in approving loans when he was head of Bank Leumi's main branch in Tel Aviv. Bank Leumi International and Private Banking Division head Zvi Itskovitch is responsible for Bank Leumi UK.
Published by Globes [online], Israel business news - www.globes-online.com - on January 11, 2011
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