It has been disclosed this week by Teri Buhl, contributing editor for DealFlow Media, that at least one wealthy investor intends to sue Barclays, alleging that the bank used a less-than-straight Geneva company to sell products it knew to be toxic, in an effort to get the liabilities off its balance sheet. Current CEO Bob Diamond was in charge of the investent division, Barcap, at the time. New internal email evidence has emerged since the last suit was thrown out on a technicality….and the Swiss authorities are keen to prosecute.

Just how good (and honest) a corporate manager is Bob Diamond? This seems to me a reasonable question to ask, given that he’s given evidence to Parliamentary committees, and in quite a few courtrooms, since 2008. And of course, having been for some time the CEO of Barcap, Bob’s ‘success’ catapulted him into the same role in charge of the entire Barclays Group that he holds today.

Following the Barcap takeover of Lehman in 2008, Diamond faced charges from Lehman liquidators that he had been a tad lax on the verite about this and that. The case was dismissed, but later a group of shareholders came back with a similar charge – and that civil case is, I’m told, still outstanding.

During his evidence to Parliament in late 2010, Mr Diamond said he had “never called upon taxpayers’ money” during the credit crunch. This was an incorrect answer, as his Barcap outfit took a bridging loan from the US Fed to complete the Lehman deal. According to one Lehman insider later re-employed by Barcap, “The Barcap guys pitched up to be briefed after the deal, and it was clear they didn’t know the first thing about our desk. Diamond didn’t exactly do what you’d call due diligence”.

It also looks like, at some time during 2005/6, Bob the *anker was a little light on character judgement when it came to forming a partnership between Barcap and Geneva-based investment outfit Avendis.

Avendis Capital was founded  in February 2001 by four partners – Eric de Sangues, Yannis Bilquez, David Benichou and Marco Rigo. In 2002 the company diversified into investment management and launched Avendis Enhanced Fixed Income, described by de Sangues at the time as one of the world’s first ‘correlation hedge funds’. The use of a meaningless four-syllable jargon word there is par for the course with Eric: in 2005 he gave out with this complete bollocks to Hedge Weekly:

“The fund develops relative value strategies in the capital structure of synthetic static CDOs through 2 different approaches both quantitatively driven. Bespoke static Synthetic CDO Tranches are used to build exposure to investment grade credit idiosyncratic risk [and we] trade Standard index tranches of iTraxxIG and DJ CDX IG. The strategy takes advantage of structural dislocations in the correlation market, and increased liquidity of the Index Tranche market, to generate alpha through momentum and mean reverting relative value trades in the capital structure.”

There are a great many former Barcap/Avendis investors who would give a lot for just one chance to exert some structural dislocations closely correlated with Eric’s neck, but anyway Barcap’s Diamond Geezer liked the cut of his jib, and in 2006 together they launched a fund called Golden Key.

Golden Key was a type of structured investment vehicle (SIV-lite) pioneered by Barclays Capital. So Diamond can’t wriggle put of this by citing ‘bad advice’: Avendis was merely the vehicle for something Barcap had already invented. It was based on toxic mortgage crap: and as this was already a known risk, one could debate for hours as to Barclays’ motives for wanting a vehicle not called Barclays to market it. Certainly, shifting several billion in radioactive isotopes off the books is never a bad idea.

The whole thing turned to poo-poo quite quickly.

On 30th November 2007, Yannis Biquez was arrested by the Geneva police and charged with offences involving ‘betraying the confidence and embezzling the money of investors’. He was eventually found guilty of embezzzling $20m in 2008, but just three weeks after his arrest, Barclays Capital lent Avendis $1.5 billion. The reason given to the shareholders was ‘severe liquidity troubles in the financial markets’, something of an understatement as the loan was equal to the value of the entire assets under management by Avendis.

Barclays shareholders may well ask themselves whether this was an entirely wise move in the circumstances. While regulators might wonder if other agendas were in play.

On November 2008, there was more bad news: the authorities issued fines totalling
€100,000 against Avendis Capital SA, for ignoring short-selling rules  issued by the EU. This was also the year that the company’s investors got together to sue Avendis…. because they believed BarCap had used the SIV-lites, via borrowings, to take the toxic securities off Barclays’ accounts. The case alleged that Avendis directors and senior Barcap investors all conspired to carry out this dumping of cancerous junk, but I’ve no idea what gave them that idea. Heard in New York, Barclays hired a smart lawyer to find a hole in it the case was thrown out on a technicality.

Now, however, wealthy Geneva investor Philippe Rebourg of Coficap seems to have hard evidence…in the form of emails from Avendis and Barclays’ executive, Kelsey Burr, detailing their cozy relationship – and an alleged plan to screw investors in the name of saving Barclays’ balance sheet.

Rebourg has told  Teri Buhl that he expects it will take two to three weeks for the judge to rule; and as it happens, there is also a changing of the guards in the Geneva A.G. office: incoming Attorney General Michael Lauber has told local media he is up for the idea of filing claims against bankers for financial crimes.

The key name in a lot of these emails is senior Barclay’s executive Kelsey Burr. Spookily, as soon as Rebourg began  negotiating with Barcap this summer just gone, Kelsey suddenly left the company. Insiders tell me 38 year-old Burr was in fact disappeared, but if there just possibly might be any guilty secrets relating to his severance, then he’d be unlikely to have done so without taking some hush-money.

As Mr Burr was Director of Equities and Funds Structured Markets at Barcap, we can assume that CEO Bob Diamond was more than a passing acquaintance. And his departure from Europe to nearby Chicago happened very soon after this this whole mess blew up, I suppose it’s possible that a degree of ‘out of sight, out of mind’ was involved – I couldn’t possibly comment.

As for the $1.5bn loan, it’s all gone. The latest listing for Avendis Capital simply says ‘out of business’. But of course, along with that lost loan went a lot of extremely smelly balance sheet doo-doo…and banking is all swings and roundabouts in the end, isn’t it?

But where are they now, these fine inventive men of Avendis, in which Barclays CEO Bob Diamond had such great faith?

Eric de Sangues works at No 60 Wall Street, where he is employed by Deutsche Bank.

David Benichou now works as a Senior Portfolio Manager at HSBC in Geneva.
 Marco Rigo is Quantitative Analyst at Pictet Asset Management
 Yannis Bilquez is in prison near Geneva

Were I a Barclays shareholder, I’d be keeping a close eye on this one.

Related: What was Bob Diamond’s involvement in the 2008 Libor scandal?

Bob Diamond and the Lehman acquisition