How One Fund’s Profits Ended Up in the Caymans

[Joanne98]

February 5, 2009
By Lucy Komisar (Inter Press Service/The Komisar Scoop)<1>

President Barack Obama said he would crack down on firms that use offshore centres to evade taxes. He could begin with a New York subsidiary of one of the world’s largest private banks, which used a Cayman Islands company to shift its profits.

Why would a New York fund manager run operations through an office in the Caymans? “This type of structure is for optimising taxes,” explained Max Obrist, a Cayman Islands official of the global Julius Baer Group (Zurich).

He told IPS that “generating” the income where a company was actually based, “you would pay much more taxes”. Obrist was describing a company shifting claimed earnings to tax havens to evade home taxes. He allegedly helped Julius Baer Investment Management (JBIM) New York do just that.

Obrist is a director of Baer Select Management (BSM), a Cayman Islands company. According to a
whistleblower who used to work with him in the Caymans, BSM is a fake firm created by Julius Baer
to sign agreements with JBIM and other subsidiaries so they could evade taxes.
The whistleblower, Rudolf Elmer, 53, a German, was chief operating officer of Julius Baer Bank & Trust Company (JBBT), Caymans, at 212,000 dollars a year and served on the BSM board from 1999 to November 2002. JBIM paid fees to BSM to “manage” its investments. Elmer told IPS that JBIM moved to BSM profits it should have reported to the U.S. Internal Revenue Service.

JBIM is now called Artio Global Investors. It manages 72 billion dollars in assets. It has some 900 institutional clients,including corporations, pension funds, endowments and foundations and major financial institutions as well as more than 700,000 mutual fund shareholders.

Its chief executive and chief investment officer Richard Pell and head of international equity Rudolph-Riad Younes were paid 120 million dollars during the first nine months of 2007, leaving the company with income of 48.6 million dollars.

Artio is a subsidiary of Julius Baer Group, Switzerland’s largest private banking group with over 300 billion dollars in assets invested on behalf of institutions and very wealthy individuals. Julius Baer’s reported profits in 2007 were more than 1.1 billion dollars. It has 30 offices in world financial centres, from New York and London to Dubai and Tokyo. BSM is a Julius Baer subsidiary.

Elmer said, “There was a strategic plan adopted in 1996 to utilise Baer Select Management, JBIM New
York and JBIM London to benefit from the offshore system.” He said that JBIM assigned management
functions to BSM in order to award it a performance fee. He provided backup documentation to IPS,
including financial spreadsheets.
He said that Obrist in the name of BSM ratified a few decisions, but really worked for JBBT. He said that control was exercised and decisions taken by JBIM New York or Julius Baer Investment Funds Services Ltd, Zürich, which were part of Bank Julius Baer & Co, Zürich.

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http://wikileaks.org/wiki/How_One_Fund%E2%80%99s_Profits_Ended_Up_in_the_Caymans

[Joanne98]

1. The response

February 6, 2009
By Jason Rhodes and Lisa Jucca (Forbes / Reuters)<1>

Bank had 5 million SFR loss from "trading incident"
Anonymous letter says employees hid "millions" in losses
Shares tumble as much as 40 percent, later pare losses
Regulator says still assessing situation
Firm says GAM not for sale; FY net profit 852 million Sfr
ZURICH, Feb 6 (Reuters) - Swiss bank Julius Baer said on Friday it had suffered a "minor trading incident" last year, playing down investor concerns over an anonymous letter which said employees hid losses.

Shares in the bank fell as much as 40 percent as copies of the letter circulated among traders on Friday, but the stock later recovered much of that ground as the bank estimated the resulting loss at just 5 million Swiss francs ($4.2 million).

Hans de Gier, who was appointed chief executive of the private bank after the suicide of Alex Widmer in December, told a news conference on the day of the full-year results that Julius Baer took proper action after a letter was sent to the authorities relating to an incident.

"There was a minor trading incident in October but it was absolutely irrelevant," de Gier said.

Julius Baer later confirmed that a former employee of its markets division failed to follow instructions in respect to certain bond positions, causing an unrealised loss of 5 million francs which it disclosed in its annual report on Friday.

"This issue is really not of relevance for the group given our large business volumes," a spokesman said in an internal memo to staff sent to Reuters, adding that auditors and the Swiss regulator had signed off on its 2008 annual report.

Julius Baer said it was in contact with the Swiss bourse about a possible investigation into market manipulation about what it called the "anonymous defamatory letter".

"It looks as if the situation is not material, but they didn't handle the communication very professionally," said Rainer Skierka, an analyst at Bank Sarasin. "The results look relatively good in the circumstances."

The letter, purportedly from several unnamed directors in Julius Baer private banking, said junior employees in the market division had parked loss-making securities on the bank's own account to avoid booking "several millions in losses".

http://wikileaks.org/wiki/J.Baer_confirms_trading_incident%2C_shares_off_lows