MISUSE OF FUNDS: Former Parex bank owners stand accused of giving themselves preferential access to company funds.
RIGA - In the latest spectacle of Valerijs Kargins’ and Viktors Krasovickis’ fall from the commanding heights of Latvian banking society, Parex bank has filed a lawsuit against these former board members and majority owners, seeking to collect compensation for losses caused to the bank when they were running it, reports Nozare.lv. The head of the bank’s communications department, Indra Zinkevica, said this move is based on results from a legal and financial audit conducted on bank records, and a detailed and competent analysis of the circumstances which prevailed during the owners’ stewardship.
“The bank has analyzed loan and deposit agreements that were concluded between Jan. 1, 1995, and Dec. 5, 2008, between the bank and its two former board members, who were also the bank’s majority shareholders, as well as with other persons related them. The bank has identified a series of transactions which were concluded in violation of the bank’s interests. Terms applied to the bank were particularly disadvantageous and much different than those which would usually apply to agreements concluded by unrelated parties,” Zinkevica explained. She pointed out that analysis of these transactions shows that during the stated period, the two former board members enriched themselves at the bank’s expense.
The audit and analysis was done at the bank’s request by financial and legal consultants from Latvia and abroad - the legal firm Herbert Smith LLP in London, the auditing company KPMG LLP also in London, and the legal firm Eversheds Bitans in Latvia.
“It is of key importance that, according to the information that is at the bank’s disposal, the stated agreements were concluded in a way which represented a conflict of interest for Kargins and Krasovickis, while also violating a number of legal norms. Accordingly, the activities of the two former board members can be said to have involved serious violations of the duties of board members, as specified by law, thus leading to serious losses for the bank. The Commercial Law states that board members must be honest and careful in their management of the relevant enterprise. Board members are liable for losses caused to the company by their action or inaction. That is why the bank has the right to file suit against the former board members, demanding compensation from them for the losses that were caused,” Zinkevica added.
As part of the lawsuit, the bank is also seeking compensation from Kargins and Krasovickis for losses related to violations of the investment agreement that was concluded in November 2008. The government took over the capital shares from the two on Dec. 5, 2008.
Parex is continuing with its restructuring plans. The splitting of the bank was completed during the night of July 31, with the new bank Citadele officially beginning its activity on Aug. 1, taking over the old bank’s “good” assets.
In accordance with a decision by the July 30 meeting of the Parex bank council, Christopher John Gwilliam has become the bank’s new chairman of the board. Solvita Deglava and Jurijs Adamovics will also work on the board, which began its activity on Aug. 1.
Following a decision by the Cabinet on March 23 to split up Parex and create a new bank, Citadele was added to the Commercial Register on June 30, after being issued a banking license by the Finance and Capital Market Commission the previous day. The Privatization Agency is the founder of the new bank.
The government on July 29 authorized the Latvian Privatization Agency to sell 25 percent plus one Citadele bank shares to the EBRD. Citadele’s share capital is now 103 million lats (147.1 million euros), making EBRD’s investment in the new bank at around 25 million lats.
As Citadele and Parex Corporate Communications Director Indra Zinkevica explained, all clients of Parex, with the exception of those indicated in the transition agreement, will automatically become clients of the new bank. The old bank will continue to operate with the recovery of credit loaned to clients who were not allocated to the new bank.
The introduction of the Citadele bank name and the refurbishment of all branches and client service centers are expected to be completed by the end of the year.
Currently, 76.6 percent of shares in Parex belong to the Latvian Privatization Agency, while 19.7 percent belong to the EBRD.