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Lombard Odier in row over fund losses and ‘malpractice’

BY Rebecca | 13 July, 2014 | no comments

One of the world’s most exclusive private banks has been accused of mismanaging a key fund and of not being transparent about tens of millions of dollars of losses chalked up on behalf of its well-heeled clients.

Lombard Odier, which has managed the finances of some of the world’s wealthiest families for two centuries, is embroiled in a bitter legal dispute with a former manager, who says that he was dismissed after blowing the whistle on the bank’s failings.

Elvis Pellumbi, a London-based portfolio manager, has been accused in turn by the bank of “an unashamed manipulation of the truth for his own self-gain” in filings at an employment tribunal in London.

The documents were released to The Times after it succeeded in a legal appeal. Lombard Odier emphatically denies all the allegations.

Mr Pellumbi, 40, who worked in the Swiss bank’s Mayfair office, was paid £312,000 in base salary and is seeking £2.7 million in compensation. Originally from Albania, he has worked in investment banking and asset management for about 15 years.

Hundreds of pages of witness statements lodged with the tribunal give a glimpse of infighting and dysfunction at the heart of the ultra-secretive bank, where at one point executives “bickered like children”, according to Hubert Keller, its chief executive.

In emails to a friend published at the tribunal, Mr Pellumbi described how he hated his boss, Martin Fisch, the chief investment officer, who, he claimed, was mismanaging client money.

At the heart of the dispute was the stewardship of a $500 million hedge fund, the LO AOG Energy Fund, into which client money was invested.

Mr Pellumbi managed one part of the energy fund successfully in the years 2010 to 2013, but he became increasingly concerned that another chunk of the fund, managed by Mr Fisch, was being poorly run, wiping out almost all the fund’s profits.

The efforts of Mr Fisch, who still works for Lombard Odier, were “a disaster for investors”, according to Mr Pellumbi. Mr Fisch’s “Macro” subfund underperformed its benchmark and lost $39.62 million between the parent fund’s launch in 2009 and February 2013, he claimed.

However, Mr Pellumbi claimed that when he raised the issue, he found himself punished and marginalised — forced to liquidate a large portion of his portfolio at short notice — and then dismissed. “In short, he was ‘out’ because he caused trouble for [LO], having ‘rung the bell’ as to what he believed to be malpractice,” his written claim says.

Lombard Odier says that it dismissed Mr Pellumbi in the summer of 2013 after a business decision was taken to restructure the energy team in which he was working.

A spokesman for the bank said that there had been no cover-up and that it had kept clients fully informed about the fund. “Investors were informed about the performance of the fund on a monthly basis, through very detailed and transparent newsletters,” he said.

“Over the entire life of the fund, investors have actually not lost money in the fund, which delivered a positive performance of +2.6 per cent net of all fees, from December 2009 to December 2013.” It has since been liquidated.

During the tribunal, the court heard that Mr Pellumbi had been dismissed by UBS, a previous employer, for a mistake he had made “in relation to the confidentiality of certain information and an ill-advised knee-jerk reaction when the mistake was discovered”.

In his witness statement, Mr Keller said that the company had given Mr Pellumbi “the huge benefit of the doubt when faced with the damning UBS investigation report”.

In 2012 the bank was indirectly linked to the Bernard Madoff scandal because some clients had invested in the fraudster’s scam, although Lombard Odier said that it had never benefited financially.

A spokesman for Mr Fisch said that the claims against him had occurred when he “needed to reduce the costs of the team, and this included Elvis Pellumbi’s own salary, which was double the normal rate for his role.

“Elvis Pellumbi’s high salary reflected the [bigger] job he had originally been hired to do but which he hadn’t succeeded at.”

The tribunal is due to issue its judgment in October.

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