Hottinger & Partners Fraud

The truth about the HPSA fraud

Fabien Gaglio lived a jetset lifestyle, partying with the rich and famous while investing his clients’ money in apparently safe assets. But then the lie was exposed: Gaglio was a French Bernie Madoff. He stole money from innocent investors to cover up his investment mistakes and to fund his lavish lifestyle. His victims included an Oscar-winning musician, a tech entrepreneur and investors from around the world.

Gaglio has admitted his guilt to the French police and the Luxembourg courts but more than five years have now passed since he was exposed and the fraudster still hasn’t been prosecuted in Switzerland – where most of the crimes were committed. The Swiss authorities have amassed a huge amount of information but have done nothing with it. We are therefore releasing hundreds of pages of evidence so that everyone can understand how Gaglio perpetrated this fraud and how he got away with it for so long.

After working in London, Gaglio joined a Swiss investment firm called Hottinger & Partners SA (HPSA) in 2005 and ran it with a business partner, Jean-Francois de Clermont-Tonnerre. HPSA was affiliated with Hottinger & Cie, a Swiss private bank that had roots back to the 18th Century. After years of stealing from clients, Gaglio was finally caught by Clermont-Tonnerre in January 2013.

Fabien Gaglio the Fraudster

Fabien Nicolas Gaglio was born in 1973 and grew up on the French Riviera. After studying law at university he moved to London and started a career in finance.

He started lying early in his career, forging banking qualifications to apply for a job at Merrill Lynch. Despite the suspended sentence he received for this lie, he was able to get a job a year later at Rothschild, the private bank.

Gaglio started defrauding clients long before joining Hottinger & Partners. In an interview with Swiss prosecutors, he admitted: “You ask me whether these people [clients that followed Gaglio to HPSA] were victims of losses, more specifically of embezzlement, when I was managing their accounts while in London.  The answer is yes.  You ask me whether other people, whose accounts I also managed before joining HPSA but who did not follow me to HPSA were also victims of embezzlement in the past.  The answer is yes…” (Interview 12th August 2014, p4.)

According to a report by Bloomberg, Gaglio walked into a Paris police station at 9am on January 23, 2013 and admitted to running a $100 million Ponzi scheme. He told detectives that he “took money from one client to pay another” and had faked statements and signatures to cover up his fraud for years.

He had also enjoyed a lavish lifestyle at the expense of his unwitting investors, spending money on holidays, private jets and artwork by Andy Warhol and Keith Haring.

After years of lying and getting away with fraud, Gaglio was eventually caught out by a discrepancy in bank statements. One of Gaglio’s clients sent a statement to HPSA’s office administrator, SA asking for clarification on certain investments. But the numbers were completely different to the actual statement that Adam had just seen from the Bank of Luxembourg so she took the documents to Clermont-Tonnerre.

In testimony to the Luxembourg Court, Clermont-Tonnerre said: “SA had spoken with Gaglio a few minutes before and told him to discuss this issue with me. He told her not to tell me anything and that he would fix it. SA and I called Gaglio to explain what she had discovered. For two minutes Gaglio tried to explain that it was a mistake and that he will put everything in order with the client the next day. From that point forward, I have never heard back from Gaglio.” (14th July 2016, p7.)

Deloitte Identifies $35m in Fraud

Deloitte’s objective was to identify suspicious account movements at HPSA and investigate whether these transactions were supported by proper bank documents. The firm’s forensic accountants looked at 10 client accounts managed by Gaglio.
Deloitte submitted its report on 15th March 2013 to Jean-François de Clermont-Tonnerre at Hottinger & Partners SA and also to the Public Prosecutors’ Office in Geneva.
Deloitte provided 260 pages of banking documents, loan agreements and emails as evidence and a further 822 pages of supporting documents. Deloitte estimated that the total losses attributable to Gaglio’s fraud at HPSA were about $54 million. About $18 million of these losses could have been authorised by clients as legitimate transactions or were likely to be recovered from legitimate investments.
Therefore, Deloitte’s estimate of total client losses at HPSA due to Gaglio’s fraud was about $35 million.
However, Gaglio was also stealing from clients outside the HPSA structure and has admitted to defrauding clients at his previous places of employment. It has therefore been estimated that up to $100 million was stolen over the course of his fraudulent career.

After the fraud was discovered, Clermont-Tonnerre began to “tearfully relay the news to Hottinger & Partners’ clients,” Bloomberg wrote. He also hired the accountancy firm Deloitte to audit HPSA and determine the extent of Gaglio’s fraud and client losses.

In the aftermath of the fraud, Gaglio claimed that all the money he stole was gone and that he had nothing left. Clermont-Tonnerre was able to recover some assets for Gaglio’s clients but millions of dollars remain missing.

The courts in Luxembourg were the first to charge Gaglio and he was sentenced to five years in prison, which was then reduced (see below). Civil and criminal complaints have been filed against Gaglio in Switzerland and prosecutors there are investigating the case.

Luxembourg Prison Sentence

The Court of Luxembourg sentenced Fabien Gaglio to serve a 5-year prison sentence and pay a fine of €150,000 after finding him guilty of forgery and falsification of records; fraud and embezzlement; and money laundering. In a judgement issued on 14th July 2016, the Court found that Gaglio had stolen almost €7.5 million from HCTG SA, a Luxembourg-based private equity vehicle co-owned by Gaglio and Jean-François de Clermont-Tonnerre.

In its judgement, the Court said: “Gaglio is found guilty of forgery and falsification of records between February 2011 and February 2013, in Luxembourg, by fraudulent intent to falsify banking records and forging signature…; in order to take unfair advantage of money that did not belong to him.” (p43)

During his trial, Gaglio claimed that he had no money left and, as a result, the Court imposed the relatively low fine of €150,000. In addition, the Court also found Gaglio liable to pay damages of €420,000 to a number of victims, including Gaglio’s former business partner Clermont-Tonnerre.

After serving a year of his sentence, Gaglio appealed and the sentence was reduced. With parole time, it is likely that Gaglio will not return to prison in Luxembourg. Bloomberg noted how light this sentence was compared to the 150 years given to Bernie Madoff and 110 years given to Allen Stanford.

 

For more info on the Switzerland investigation