A criminal complaint has been filed against Barclays in Geneva, Switzerland this week for its role in a $1.4 billion structured investment vehicle (SIV) called Golden Key. The Barclays arranged and structured SIV blew up in spectacular fashion in 2007 and a French asset management firm, Oddo, tried to sue the British bank for fraud in a New York court but got the motion tossed, in 2009, on a technicality. So now one independent investor from Geneva has foregone the US court system and filed his own criminal complaint against the bank and the collateral manager they hand picked — Avendis Capital a Swiss asset management company.

Golden Key was considered a SIV-lite, meaning it would raise an amount of capital, borrow money in the short-term commercial paper debt market, and then invest all of this money in higher interest rate bearing instruments such as mortgage-backed securities, in its strategy for high returns. Investors in Golden Key originally sued, in 2008, because they believed BarCap was sitting on a bucket of rmbs they needed to off-load and the bank arranged for the SIV-Lites to expand their size by increasing their borrowings and use these borrowing to take the toxic securities off Barclays’ hands. The idea was collateral managers like, Avendis, were buddy-buddy with BarCap executives who were in charge of selling and creating the SIV, and would basically let BarCap pick the collateral for the SIV.

This is a method we’ve seen before in CDO fraud cases brought against Goldman and Merrill Lynch. But in the Barclays suit they didn’t have any hard evidence like emails from Avendis and Barclays’ executive, Kelsey Burr, detailing their cozy relationship or plan to screw investors in the name of saving Barclays’ balance sheet. Well now they do.

The Geneva investor, Philippe Rebourg of Coficap, just happen to get a hold of some damaging internal Barclays comunication, which are now evidence in his criminal complaint. You see in some European countries citizens can file their own criminal complaints when the local D.A. or prosecutor doesn’t do it first. Then a judge will decide if the criminal complaint goes forward. While the complaint is filed if any of these BarCap executives named in the claim show up in town they can be arrested. Rebourg told me he expects it will take two to three weeks for the judge to rule and the suit is currently sealed. Luckily there is also a changing of the guards in the Geneva A.G. office and incoming Attorney General Michael Lauber has told local papers he is gun hoe to file claims against the banks for financial crimes.

I’ve seen emails between Barclays and Rebourg for months now and he’s warned them he is going to file a criminal complaint and expose the damaging emails if they don’t settle with him. Well he clearly got sick of their cat and mouse litigation game and apparently called their bluff by filing the criminal complaint. The veteran Barclay’s executive who worked out of the Chicago office for years, Kelsey Burr, suddenly resigned or took a buyout package this summer. BarCap’s Chicago office confirmed for me in August he was no longer with the firm and Burr has not responded to emails for a request for comment.

Another alleged bad actor from BarCap was John Parker. I’ve seen an email chain from April 2007 between Parker and Avendis executive Katy Huang explaining that Avendis as the collateral manager was worried about owning the riskiest shares (capital notes) in Golden Key and their plan was to sell off the risky capital notes to investors (high yield chasers) Parker and team had lined up. Avendis also had a hedge fund that bought a ton of Golden Key notes but there were restrictions in the fund’s offering memorandum regarding how much they could buy. BarCap allegedly solved that little problem for them by simply giving the fund more leverage (borrowed cash) to buy more Golden Key notes. Then Avendis got stuck with all that Golden Key toxic paper, while the rest of The Street was shunning buying any SIVs in mid to late 07. The result was Golden Key investors lost their investment and Avendis got this neat loan from Barclays to cover it’s losses in 2007 but the hedge fund still ended up filing for bankruptcy. Ouch.

Barclay’s was smart in setting up the whole thing in offshore llc’s etc… to advert US securities laws thus the failed US lawsuits. The last time Barclays got caught up in a criminal complaint is when the US DOJ was not happy about them doing banking with countries the US had sanctioned and they paid the US a $300 million fine for their ‘special relationships’. But it will be interesting to see how the Swiss handle this new evidence and if other investors ,like Union Mutal Pension fund who sued BarCap in a French court this year, will join with Rebourg to file more suits given the nugget of internal emails he has. You see since bad faith has already been ascertained in September against Barclays by a Canadian judge in a similar situation (the Devonshire Trust case), Coficap hopes that the Swiss judge will recognize this time the criminal nature of Barclays’ misconducts under Swiss criminal law.

Stay tuned — once the case is unsealed I’ll be able to detail more on how the alleged plan by Barclays to screw their investors went down. Until then if you ever did deals with Barclays’ John Parker or Kelsey Burr I’d love to hear from you. I’m also interested in hearing from Golden Key investors regarding Jerry del Missier’s possible role in BarCap’s SIV strategy.

UPDATE 1/2/2012: John Ward a UK blogger has written an opinion piece on the news I broke. He details more about the history of the Avendis managers and points out one of them already went to jail for investor fraud.

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