Buenos Aires, Sept. 26 (Bloomberg) -- Monica Orlando thought she safeguarded her savings against Argentina's crumbling economy last year by entrusting the funds to a bank owned in part by J.P. Morgan Chase & Co., Credit Suisse Group and Dresdner Bank AG.
When her money disappeared from the bank's Uruguayan affiliate in January, she expected the three non-Argentine owners to get it back.
Now she's suing the international banks and their chief executives, who sat on the board of the Argentine bank, Buenos Aires-based Banco General de Negocios SA. At least four other clients have sued and hundreds more say they plan to do the same.
The Argentine bank is in liquidation and as much as $360 million has disappeared from its affiliates in Uruguay, Panama and the Virgin Islands, lawyers said.
``I feel absolutely defrauded,'' said Orlando, a Buenos Aires attorney. ``We're talking about some of the top banks in the world. After watching how they played dumb, I saw no alternative but going to court.''
J.P. Morgan, Credit Suisse and Dresdner spokespeople said the banks and their chief executives have done nothing wrong and are not responsible for the lost funds. It was the banks themselves that asked regulators and courts to investigate what they say may be fraud committed by their local partners.
The missing funds highlight banks' difficulty in managing risk in developing countries and dealing with local partners during a time of financial crisis, analysts said.
Web of Banks
``The principal lesson is, if you're going to engage in this type of business, your due diligence standards have to be higher,'' said Robert Kopech, a banking consultant with Oliver, Wyman & Co. in New York.
The legal challenges come at a time when all three international banks are struggling with a slump in business. J.P. Morgan said last week that trading revenue plunged in July and August and loan losses will quadruple in the third quarter from the previous three months.
Credit Suisse said it would replace Chief Executive Officer Lukas Muehlemann at year-end after widening losses wiped out half of the bank's market value. Allianz AG, Dresdner's parent, said today it will slash about 3,000 jobs at the unprofitable bank, adding to 8,000 jobs previously cut.
Clients charge in lawsuits that funds deposited in Banco General's associated Uruguayan bank vanished or were spirited into a secret offshore entity in the Virgin Islands, leaving their accounts near-empty. They say suing Banco General's international shareholders, which also indirectly hold stakes in the Uruguayan and Virgin Islands banks, is their best chance to get money back.
The Rohm Brothers
Under Argentine law, each board member can be held liable for the full amount of the disputed funds, said Marcelo Villegas, an attorney specializing in corporate governance at Buenos Aires- based Nicholson y Cano Abogados who isn't involved in the case.
``It is improper behavior for the foreign banks to abandon these clients the way they did,'' said Juan Carlos Nougues, a World Bank consultant and former chief of supervision at Argentina's central bank.
At the center of the depositors' allegations are Carlos and Jose Rohm, Buenos Aires-based financiers and brothers who controlled Banco General and an accompanying web of banks across Latin America and the Caribbean.
The partnership between the Rohms, J.P. Morgan, Credit Suisse and Dresdner goes back to 1978, when together they founded Banco General, a single-branch bank in downtown Buenos Aires that arranged initial public offerings, made loans and took deposits, according to bank officials. Banco General also helped its international shareholders win Argentine investment banking business, they said.
Golfing in Scotland
The three foreign banks own about 31 percent of Banco General's voting shares and more than 75 percent of outstanding equity. Until April, their chief executive officers -- J.P. Morgan's William Harrison, Credit Suisse's Muehlemann and Dresdner's Bernd Fahrholz -- served on Banco General's board.
The Rohms, Harrison, Muehlemann and Fahrholz golfed together in Wick, Scotland, last year as part of a board meeting there, according to bank spokespeople.
Today, Banco General is in liquidation after its international shareholders said they would no longer fund the bank. Carlos Rohm, 55, the former vice president, is in jail facing charges related to the missing funds. The investigating magistrate accused him of ``illicit association,'' an Argentine legal term for organizing a group to commit a crime.
Rohm has pleaded not guilty to the charge, which doesn't permit bail. His current criminal lawyer, Alejandro Mitchell, didn't respond to four requests for an interview.
Picture of Zurich
Former bank President Jose Rohm, 57, is in New York, avoiding an Argentine arrest warrant, his lawyers said. The U.S. has turned down an extradition request after determining it lacked evidence of a crime, they said.
Like many banks in Argentina, Banco General for years helped clients move cash offshore, a business that accelerated ahead of the country's deposit freeze in December, which was followed by a debt default and currency devaluation. Until financial crisis engulfed the region this year, many Argentines viewed Montevideo - - 40 minutes by plane from Buenos Aires across the River Plate -- as a stable haven to park their savings.
Banco General attracted customers with brochures highlighting its international shareholders. The advertising showed pictures of the foreign banks' headquarters in New York, Zurich and Frankfurt, and pointed out they held a three-fourths equity stake.
``Seeing these big CEOs on the board is what brought me in the door,'' said Horacio Madorno, founder of computer software company Softron SA, who says he is missing about $1 million.
Same Shareholders
Madorno and other clients who had more than $50,000 to send abroad said they were advised by Banco General account executives to open an account in Uruguay's Compania General de Negocios (Uruguay) SAIFE. Banco General staff operated the Uruguayan bank out of Banco General's offices, according to court documents, and assured clients that the two entities had the same shareholders. Clients said they set up their Uruguayan accounts, dropped off funds and retrieved statements at the Buenos Aires bank.
Compania General is a wholly owned unit of another Rohm- controlled entity, San Luis Financial & Investment Co., a Panama- based bank of which Credit Suisse owns 12 percent, J.P. Morgan 9.4 percent and Dresdner 1.8 percent, according to the international banks.
Things began to unravel in January after Jose Rohm flew to Zurich and told Muehlemann that Carlos Rohm had been hiding a $250 million loss inside the group of banks, according to Argentine court documents. J.P. Morgan told local authorities the Rohms might have committed fraud, and Uruguay's central bank took over Compania General.
Twin Bank
Clients heard the news and some, such as Ricardo Alonso, headed for Montevideo to check on their Compania General accounts. When the staff, now working under Uruguayan central bank supervision, gave Alonso a statement showing less than 1 percent of his deposits, they suggested he contact Carlos Rohm's lawyers to find the remainder.
Back in Buenos Aires, attorneys at Uriburu Bosch & Asociados produced a paper that listed the rest of Alonso's more than $100,000 in cash and bonds. He noticed the logo said Compania General de Negocios (Uruguay) SA, rather than Compania General de Negocios (Uruguay) SAIFE -- as, he realized later, did many of the statements and receipts he'd gotten for months.
Alonso's money, along with that of most clients, had vanished into this twin bank, based in the British Virgin Islands and owned also by San Luis Financial, court documents show.
Hiding Assets
The two banks' identical names and logos were designed to mislead clients, Compania General CEO Francisco Estrada told depositors who marched into his office in February and questioned him in front of a notary public, according to the notarized statement. His name appears on deposit slips from both banks.
Clients said the tangle of offshore, unregulated banks may have helped the Rohms cover financing gaps and hide bad assets. Uruguayan officials in January discovered that Banco Comercial SA, another Uruguayan bank owned by J.P. Morgan, Credit Suisse, Dresdner and the Rohms, was short about $185 million in bonds listed as assets, according to Uruguay's central bank.
``We continue to insist we did not have any knowledge or involvement in any wrongdoing,'' said J.P. Morgan spokeswoman Brooke Harlow. Credit Suisse had no knowledge of irregular activity until Muehlemann was told by Jose Rohm in early 2002, said spokeswoman Cristina Von Bargen.
`Internal Use'
Dresdner spokesman Karl-Friedrich Brenner said that hiding losses from foreign shareholders appeared to be part of what Dresdner says was fraud at the Rohm-controlled banks.
A lawyer for the Rohms in Buenos Aires who ran Banco General after Carlos Rohm's arrest, Rafael Algorta, said in an interview last month that his clients ``didn't steal anything.''
``We presume everything happened with the knowledge of the foreign shareholders,'' he said. ``We understand the funds were for internal use inside the group.''
The two Compania General banks and San Luis Financial owed depositors about $360 million at the end of last year, said Eduardo Carrera, a lawyer for the Rohms in Montevideo. He declined to estimate the group's assets.
``The three foreign banks together with the Rohms have to pay for this liquidation,'' Carrera said.
Regulators have already ordered the liquidation of Banco General and Compania General. Uruguay suspended most financial transactions at Banco Comercial due to lack of capital.
Lawsuits
Compania General clients have begun to get organized. About 300 of them meet on Monday evenings in a Buenos Aires auditorium, where they plan legal strategy in Uruguay and Argentina. They hired Uruguay's former Economy Minister Ignacio de Posadas as an adviser and lobbied ambassadors from Switzerland, Germany and the U.S.
Dozens of other depositors have formed separate groups and filed more than four suits in Argentina that name J.P. Morgan's Harrison, Credit Suisse's Muehlemann and Dresdner's Fahrholz, as well as the banks themselves. One civil suit prompted an Argentine judge to order the impounding of $700,000 each from Harrison, Muehlemann and Fahrholz, said attorney Santiago Bargallo, who filed the suit.
The judge hasn't yet written an order seeking international enforcement.
Some lawyers said depositors' claims may be difficult to prove.
``Without evidence of gross negligence, shareholders and board members would not be held liable,'' said Raul Valdes-Fauli, a partner at Steel Hector & Davis LLP, a Miami law firm.
Offshore Affiliates
And analysts said the international executives probably didn't know about the alleged fraud.
``These guys aren't sitting on the board to review every transaction -- that's what auditors are for,'' said Kopech, the banking consultant.
Ernst & Young accountant Arturo Lisdero, who audited Banco General, declined to comment.
Bargallo, who is representing more than four dozen depositors, said Harrison, Muehlemann and Fahrholz are responsible for the lost savings because they failed to stop Banco General from collecting funds in Buenos Aires for offshore affiliates, a practice that an Argentine judge said was illegal. The three foreign board members ``must have known how this basic business line worked,'' Bargallo said.
For Juan Gasset, who heads the Monday-night group and sees little chance of retrieving funds from the Rohm brothers, the objective is clear.
``The guy with money pays,'' he said.