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German court acquits ex-HSH managers in post-crisis trial
July 9, 2014 / 10:31 AM / in 3 years

German court acquits ex-HSH managers in post-crisis trial

HAMBURG, July 9 (Reuters) - A German court acquitted ex-managers of bailed-out German lender HSH Nordbank of charges including accounting fraud in a high-profile case stemming from the financial crisis, a decision that may have implications for other similar lawsuits.

Former Chief Executive Dirk Jens Nonnenmacher and former capital markets head Jochen Friedrich were acquitted of charges that included breach of fiduciary trust and accounting fraud, as the court found they did not intentionally violate their obligations. “The defendants are acquitted,” judge Marc Tully of the Hamburg district court said.

The HSH trial was one of the first cases of a European bank’s entire executive board being tried for actions taken in the run-up to the financial crisis.

Prosecutors had sought suspended sentences of up to one year and 10 months as well as fines of up to 150,000 euros ($204,600)for the former HSH directors, who had pleaded not guilty.

HSH - along with other regional state-owned German lenders known as landesbanks - lost billions of euros on risky investments in the financial crisis. This forced its owners - the state of Schleswig-Holstein, the city of Hamburg and local savings banks, or sparkassen - to prop it up with a 3 billion euro capital injection and additional 10 billion euros in loan guarantees.

The bank said it would still seek to claim damages from the former managers in civil court proceedings.

The prosecutor had accused the bank’s managers of improperly accounting for a deal dubbed “Omega 55” which they struck to make the balance sheet appear stronger ahead of a planned listing on the stock exchange.

LIGHT TOUCH

Since the financial crisis, policymakers globally have introduced new banking rules aimed at preventing taxpayers from having to bail out banks in the future, but few bank executives have faced court actions.

The collapse of Iceland’s banking system six years ago resulted in convictions, with the former chief executive of failed bank Glitnir among those given prison sentences.

Germany has seen isolated high-level convictions but no prison sentences. The former CEO of corporate lender IKB was convicted of market manipulation and received a 10-month suspended sentence.

A criminal case against former managers of bailed-out LBBW for accounting fraud ended with a settlement in which the court ordered them to make payments to charities.

Bosses at Ireland’s Anglo Irish Bank faced trial in 2014, five years after the probe into the lender began. In April, however, a judge ruled that two former senior executives were “led into error and illegality” by the country’s financial regulator and handed them community service.

In Britain, where Royal Bank of Scotland and Lloyds were bailed out for around 66 billion pounds ($112.31 billion), no senior bankers have faced criminal charges.

In the United States last November, a former Credit Suisse Group trader became the most senior Wall Street official to go to prison for criminal conduct during the crisis.

Kareem Serageldin, the bank’s former global head of structured credit, was sentenced to 30 months in prison for his role in a scheme to artificially inflate subprime mortgage bond prices.

($1 = 0.7331 Euros)

$1 = 0.5877 British Pounds Reporting by Jan Schwartz; Additional reporting by Kirsten Ridley in London; Writing by Arno Schuetze; Editing by Thomas Atkins and Jane Merriman

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