Greensill’s whistleblower advice warned German regulator of fraud last year

The German banking regulator has received a series of tips from whistleblowers over the past year who have made “various allegations of fraud” at Greensill Bank, prompting it to demand improvements at the bank, according to an internal German government report reviewed by the Wall Street Journal.

The regulator, known as BaFin, received the first round of warnings in the second quarter of 2020. The reports alleged that some of Greensill’s assets were backed by fake invoices, according to the report, which describes the regulator’s efforts in during the past year to supervise the Bank.

BaFin received another warning in the third quarter of 2020 and three more submissions this year. The report in German, which does not specify the origin of the submissions, indicates that the information expresses “concerns regarding the financial situation of the Greensill Group as well as various allegations of fraud”.

In particular, there were concerns about the loans Greensill Bank extended to the GFG Alliance, the companies of owned by Anglo-Indian steel magnate Sanjeev Gupta.

A spokesperson for Mr. Gupta declined to comment.

In letters to Greensill Bank management over the past year, the regulator has repeatedly raised concerns, including the level of professional qualifications of the bank’s CEOs, as well as potential governance violations, indicates the report.

A BaFin spokesperson declined to comment.

Greensill Capital said in early March that it had sought external legal and audit advice regarding the handling of Greensill Bank’s assets. The firm said it “has always been transparent with its regulators and auditors about its approach to asset classification and the methodologies for determining those classifications.”

The timeline provided by the report shows that authorities scrutinized Greensill behind the scenes for more than a year before he collapsed.

Greensill, a financial startup specializing in business credit, filed for insolvency in early March. The collapse jeopardized $ 10 billion in Greensill-linked investment funds at

Credit Suisse Group AG

, and caused losses for dozens of small German towns that kept money in the company’s bank.

BaFin took over Greensill Bank in early March after an audit it commissioned, based in part on complaints it received, could not find evidence of certain collateral that a large Greensill client was using to borrow. BaFin filed a criminal complaint against the bank to the German prosecutors, who will decide whether or not to open an investigation.

Greensill is the latest challenge for the German regulator. BaFin drew criticism from the German parliament on his failure at the police payment processing company Wirecard AG, which went bankrupt in June 2020.

Small towns that have made deposits to Greensill Bank have complained that they were not notified even as the bank was under investigation.

Earlier this month, BaFin said it could not notify the public of a special audit or surveillance measures due to a confidentiality status.

The existence of whistleblower advice was previously reported by Weser-Kurier, a newspaper based in Bremen, Germany.

Greensill was founded in 2011 by Lex Greensill, a former

Citigroup Inc.

and

Morgan stanley

financial. She specializes in supply chain finance, a form of short-term cash advance that allows businesses to increase the time they have to pay their bills.

Greensill acquired in 2014 the small Bremen-based bank, formerly known as NordFinanz Bank AG. It has about 20 employees.

In 2019, Greensill used most of an investment of

SoftBank Group Body

Vision Fund to recapitalize the German bank.

A spokesperson for SoftBank declined to comment.

Greensill Capital pooled the supply chain finance loans it made into bonds and sold them to investors. He also kept the loans on the bank’s balance sheet, sometimes for later sale to investors.

Mr Greensill said in an interview in 2019 that the bank serves as “a warehouse that allows us to manage the liquidity needs of our business.”

According to the report, BaFin has been monitoring Greensill Bank at least from January 2019 and was particularly concerned with the bank’s ownership structure and its exposure to a single Greensill client.

The regulator sent a letter to Greensill Bank on March 3, 2020, noting that the company had a high concentration of assets related to transactions with Mr. Gupta’s GFG Alliance, according to the report reviewed by the Journal.

The regulator then held a series of meetings with the management team of Greensill Capital and Greensill Bank. BaFin has met with members of the bank’s board over the next few months, according to the report and a witness statement from Mr Greensill in the Greensill UK insolvency case.

In September 2020, BaFin hired the German firm of KPMG LLP to undertake a forensic audit of the bank. The regulator had become uncomfortable once he realized that Greensill was directly exposed to Mr Gupta’s businesses, not his network of suppliers, according to the report and a person familiar with the operations of Mr. Gupta. Greensill.

A spokesperson for KPMG said he had been commissioned by BaFin to conduct the investigation, but declined to comment further.

On January 25, BaFin was aware that the special audit had uncovered evidence that questioned the bank’s future and revealed “serious violations by management,” the report said.

At the time, Mr. Greensill was working with investment bankers from Credit Suisse and Citigroup raise new capital investors.

Write to Duncan Mavin at [email protected] and Julie Steinberg at [email protected]

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