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COURT REPORT

Many of the victims, who number more than a hundred, are British expatriates resident on the Costa del Sol.
12.02.09 - 11:21 -

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Spanish court investigates new financial scandal affecting British residents
MARBELLA. Many of the victims bought expensive properties on the Costa del Sol. / JOSELE-LANZA
A San Roque court is investigating another case of financial fraud involving tens of millions of euros. Many of the victims, who number more than a hundred, are British expatriates resident on the Costa del Sol. The fraud could involve as much as 40 million euros.
The case centres around the Luxembourg bank, Landsbanki Luxembourg S.A., subsidiary of the recently nationalised Icelandic bank, Landsbanki. The bank allegedly offered a financial product in Spain, under the generic denomination of “equity release” or “mortgage release”. The aim of this product was to enable foreign pensioners living in Spain to mortgage their properties in Spain in order to raise loans to invest in financial products marketed by a company of the same banking group.
Landsbanki claimed that by contracting their loans and choosing their investment product, profits would be generated to produce additional income and would cover the loan interest costs. This scheme was also claimed to substantially reduce or even eliminate potential Spanish inheritance tax liabilities, a claim that was entirely baseless for many of the victims, explain the lawyers.
Marbella office
Landsbanki opened an office in Marbella in 2006 and arranged the loans using their branch in Luxembourg and then channelled the loan funds to their Luxembourg based insurance company, Lex Life and Pension S.A. This insurance company was then meant to have produced the required returns using investment bonds that they managed.
In the class action instigated by law firm Martínez-Echevarría, who represent 28 victims, both Landsbanki and its Luxembourg subsidiary, as well as Lex Life and Pension S.A. are accused of misleading publicity and financial fraud. Among the companies accused are three investment agencies who operate on the Costa del Sol and whose main target market is the British community. Most of the supposed victims are British and all of them are pensioners and owners of expensive properties.
A spokesman of the firm confirms that since starting the legal action they have been contacted by many more victims, and so the total number of cases could be over 150. They add that clients affected were mainly living on the Costa Blanca and the Costa del Sol. Landsbanki loans averaged approximately 350,000 euros for residents on the Costa Blanca and 500,000 euros for Costa del Sol residents.
Financial ruin
According to Martínez-Echevarría “the result of this scheme is that many of these clients are in financial ruin. Their properties are fully mortgaged, they owe back interest on the Landsbanki loans and the Landsbanki investments have substantially lost value.”
The lawsuit states that the affected clients are in a downward financial spiral as they cannot meet loan interest and they are accruing penalty interest. The clients will not be able to pay the loan interest, and so the interest arrears will continue to increase. Their Lex Life investments will not generate enough income to cover the interest arrears, or to cover the interest payments as they fall.
The law firm goes on to say that it is also absolutely clear that the scheme investments would never have been able to achieve the financial yields needed for the scheme to achieve the claims as advertised. Now that the investments have lost their value the situation is impossible for the victims.
Most of the clients are not able to provide extra cash or guarantees to the bank, and those who could, realise that this would only be a temporary solution, as the loan/investment scheme could never be self financing and so they would soon be back in the same position.
Clients have lost substantial capital and have potentially lost their most valuable assets i.e. their homes. These are retired people with no hope of making up their losses in the future.
They are now in a precarious situation as they are threatened with the imminent execution of the loan guarantees, specifically the execution of the mortgage on their homes, which will lead to the auction of their homes and thus their total financial collapse and homelessness for many.
As if the situation of the victims of the bank was not difficult enough, the Icelandic Government has recently had to take control of Landsbanki by nationalising the bank, as part of the urgent and exceptional measures to prevent the total bankruptcy of their financial system.
Liquidation
Subsequently, the Luxembourg branch of the bank went into liquidation, and in December 2008, a Luxembourg tribunal ordered the liquidation of the bank, appointing a judicial auditor and two liquidation administrators.
According to Martínez-Echevarría, the victims are completely overwhelmed by their terrible personal situation and disconcerted by how fast the Luxembourg bank is going to disappear and they naturally fear that their mortgages will be executed immediately.
The bank has closed its office in Marbella and has severed contact with its clients.
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