Nine managers sentenced to prison in Austrian bank trial (Roundup)

Business News

Jul 4, 2008, 10:20 GMT

Vienna - Nine prison sentences for all defendants in the BAWAG trial on Friday marked the end of Austria's biggest banking scandal, which had brought Austria's fourth largest bank close to its collapse. The Vienna criminal court found eight former BAWAG executives and one investor responsible for having created and hidden serious losses from offshore investments between 1995 and 2000. Helmut Elsner, the bank's former CEO, was sentenced to 9.5 years in prison, close to the maximum punishment of ten years, as judge Claudia Bandion-Ortner identified him as 'clearly the initiator, the driving force,' behind the scandal. Elsner was found guilty of breach of trust and serious fraud, because he had ordered 'aggressive and high-risk' investments in the Caribbean leading to losses of around 1.7 billion euros (2.7 billion dollars). The scandal reverberated beyond the financial sector as the losses of Austria's fourth-biggest bank severely weakened one of its former owners, the Austrian Trade Union Federation. The bank's problems started to unfold in 2005, when it was found that BAWAG had approved a large credit to US commodity broker Refco hours before the broker filed for bankruptcy. In the course of further investigations, it emerged that BAWAG had not declared its losses arising from speculative investments carried out by US-based investor Wolfgang Floettl (52). Floettl was sentenced to 2.5 years in prison. He had willingly received funds from the bank with the full knowledge of not being able to pay them back, the court found. The other BAWAG managers on trial were served terms of between 10 months and five years, pending appeals by the defendants. Helmut Elsner's incarceration will effectively last around seven years, as he has already spent almost two years in custody before and during the trial. One of the managers will not have to go to prison, and other executives' terms were reduced as they will remain under parole. In December 2006 the ailing BAWAG was sold off to the US-based hedge fund Cerberus. The Austrian Trade Union Federation lost some of its economic clout and social standing after it was forced to sell its stake in BAWAG. Its ousted leader, Fritz Verzetnitsch, was criticized for having sanctioned the high-risk investments and living in a luxury flat owned by the bank. The Social Democrats and the conservative People's Party, currently joined in a contentious coalition government, have used the BAWAG scandal to accuse each other of various forms of wrongdoing in the scandal.

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