The Kingdom of Sweden v Max Emil Serwin (formerly known as Emil Amir Ingmanson) & Ors [2025] EWHC 1620 (Comm)

[2025] EWHC 1620 (Comm)Case No CL-2020-000117
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (KBD)
Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 08/07/25
Before
HIS HONOUR JUDGE PELLING KCSITTING AS A JUDGE OF THE HIGH COURT
Between
THE KINGDOM OF SWEDENClaimant(1) MAX EMIL SERWIN (formerly known as EMIL AMIR INGMANSON)Defendants(2) MARK BISHOPDefendant(3) AFRAM GERGEODefendant(4) ULF ROLAND DECKMARKDefendant(5) JOHN ANTHONY FARRELLDefendant(6) BARBAROS ÖKTENDefendant(7) SOLID VENTURE CAPITAL LTDDefendant(8) LAMINA LIMITED (formerly known asDefendantSOLID VENTURE CAPITAL LIMITED (MALTA))Defendant(9) OPTIMUS SOCIALLY RESPONSIBLE INVESTMENTSDefendant(10) ENERGY EVERYTHING INVESTMENTS PLCDefendant(11) BOARDWALK CO LIMITEDDefendant(12) GERGEO HOLDING ABDefendant(13) GERGEO INVEST ABDefendant(14) WEREL OYDefendant
Aidan Casey KC and Charlotte Thomas (instructed by Greenberg Traurig, LLP) for Claimant for The 1 st, 6 th, 9 th, 10 th and 12 th to 13 th Defendants did not appear and were not represented.Hearing Hearing date: 9. 11 and 13 June 2025
Approved JudgmentThis judgment was handed down remotely at 10.30am on 08/07/25 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

HH Judge Pelling KC:

[1]This was to have been the trial over a period of 4 weeks of a claim by the claimant for damages in respect of an alleged fraud which is alleged to have resulted in the misappropriation by the defendants of sums in excess of €115m from the pension saving accounts of some 46,222 Swedish pension savers, on whose behalf the claimant seeks to recover the allegedly misappropriated sums.[2]By the start of the trial however, the claim had been settled or discontinued as against the 4th, 5th, 8th, 11th and 14th defendants. On the eve of the trial, the claim was also settled as against the 3rd defendant, leaving outstanding the claim as against the 2nd defendant (“Mr Bishop”) and the 1st, 6th, 7th 9th, 10th, 12th and 13th defendants. On 9 June 2025, the claimant and Mr Bishop asked me to delay the start of the trial to allow them to negotiate and on 11 June 2025, I was asked to approve a consent order resolving the claim as against Mr Bishop. In the result these proceedings have been resolved by agreement against all the actively participating defendants. By the time the hearing resumed on 13th June, the claim against the 7th defendant had also been settled. That leaves only the claims against the 1st, 6th, 9th, 10th, 12th and 13th defendants (collectively “remaining defendants”).[3]Mr Casey KC indicated to me on 11 June 2025 that the claimant wished to receive a reasoned judgment on the merits against each of the remaining defendants. I enquired whether it would not be more convenient to enter judgment in default of either Acknowledgment of Service or Defence as applicable. Mr Casey indicated that his client did not want to adopt that course because it was thought that at least the 1st defendant (“Mr Serwin”) and the 6th defendant (“Mr Ökten”) had assets located in jurisdictions other than England and Wales and it was anticipated that enforcing a default judgment in those jurisdictions may prove problematic. Accordingly, Mr Casey invited me to further adjourn the trial until 13 June 2025, to dispense with the attendance of any of the witnesses (since none of the remaining defendants were participating in the trial) and to hear his oral submissions in support of a judgment on the merits against the remaining defendants over one day on 13 June 2025. I accepted Mr Casey’s invitation. My reasons for adopting that course were as follows.[4]I dispensed with the attendances of the witnesses applying the principles identified by Vos LJ in Clarke v. Lighting & Lamps UK Ltd [2016] EWCA (Civ) 5 at [41]–[42] and applied by Foxton J in Lakatamia Shipping Company Ltd v Tseng & Anor [2023] EWHC 3023 (Comm).[5]I accepted the submission that the trial should be a trial followed by a reasoned judgment on the merits because I accept that the claimant is entitled as of right to a reasoned judgment on the merits against a defendant who has been served with the proceedings and had notice of, but who had not appeared or been represented at the trial, rather than being required to accept a judgment in default.[6]To the extent any judicial discretion is involved, I would have exercised it by directing the trial to proceed in the manner contended for by the claimant for the following reasons. Firstly, entering judgment in default of service of either an Acknowledgement of Service or Defence would not result in any material savings of time or costs – the costs have been incurred and even if I had entered judgment, I could have done so only for damages to be assessed, which would have to be proved just as is the case if the trial proceeds as the claimant wished it to. Secondly, I accept the potential difficulty concerning the enforcement of a default judgment outside England and Wales as being an entirely legitimate reason for seeking a reasoned judgment on the merits, applying by analogy the authorities to similar effect concerning applications for permission to apply for summary judgment where no Acknowledgement of Service has been filed by a defendant. Finally, I would have considered the wishes of the claimant to be of themselves a powerful reason for acceding to the request.[7]In consequence of the directions I have given it follows that the claimant must(a) prove its case (i) to the civil standard (ii) both on liability and quantum (iii) against each of the remaining defendants; and in doing so(b) draw to my attention “points, factual or legal, that might be to the benefit of” the unrepresented defendant, as Foxton J emphasised in Lakatamia Shipping (ibid).

Background

[8]The general background to the claim was summarised by Foxton J in these proceedings at [2020] EWHC 486 (Comm) at [6] to [9]:
“6. By way of brief background, each Swedish saver makes payments into a compulsory Premium Pension Pot or PPM. Those PPMs are administered by the [Swedish] Pensions Agency and the government is the sole owner of the funds under management. Those PPM funds can then be invested in a range of investments identified on the PPM electronic platform. Those investments have to meet the requirements of the Undertakings for Collective Investment in Transferable Securities Directive 2009/65/EU. 7. The Swedish government alleges that the first three defendants acted in combination to defraud the government by using moneys in PPM accounts to buy assets at inflated prices from entities which, unknown to the claimant, were themselves owned or connected with the defendants, or in which the first three defendants had some form of interest. 8. The case of the Swedish government is that this fraud was perpetrated in two phases, the first concerning the Optimus fund and which the government has referred to as the Optimus phase, the second concerning the Falcon fund and which has been referred to as the Falcon phase. What is alleged is that the Optimus fund used PPM money to buy mortgage backed securities at inflated prices from companies owned by some or more of the first three defendants, which (with two exceptions) were later sold at substantial losses. It is also said that moneys from other PPM funds were transferred into the Optimus fund in order to increase the size of that fund, so as to raise the 10% limit on the proportion of the funds' assets which could be invested in mortgage backed securities. When attention began to be focused within Sweden on the transfer of moneys from the other PPM funds to the Optimus funds, the Claimant alleges that the first three defendants then took steps to establish the Falcon fund in Malta, where PPM moneys were used to buy exchanged traded instruments or ETIs and other securities in circumstances in which the proceeds of those investments inured to the benefit of companies in which the first three defendants were interested. 9. The figures for estimated losses that I have been given is of losses of the order of Euros 30 million during the Optimus phase; some Euros 60 million or so during the Falcon phase in relation to ETI and bond investments, and a further Euros 30 million or so in respect of losses on further investments. The fraud is alleged to also involve the fourth, fifth and sixth defendants, each of whom is alleged to have held a position in one or other of the relevant investment management companies, or otherwise to have assisted in the fraud and wrongdoing, and a number of corporate defendants who are said to be companies controlled by the first to third defendants and to have received moneys from PPM accounts. These include some English companies who (I am told) are currently dissolved but will be subject to an application to restore them to the register, the effect of which on current authority would be retrospectively to validate proceedings commenced before that stage against those entities.”
[9]The Swedish Pensions Agency (the “SPA”) is an agency of the Swedish government which administers the Swedish pension system. Under Swedish law it does not have a separate legal identity from that of the claimant, which is why these proceedings were commenced in the name of the claimant. The “PPM” referred to by Foxton J is a compulsory pension premium (“PPM”) whereby a certain percentage of a pension saver’s earnings was put into a discrete account which is then invested in one or more of the investment funds selected by the pension saver from an online platform maintained by the SPA. Each Swedish pension saver has a PPM account. However, under Swedish law, the SPA has title to the funds in the PPM system and to any units/shares in investment funds that are purchased for PPM accounts.[10]The claimant alleges that the first iteration of the fraudulent scheme described above (“Optimus Phase”) was carried into effect using as the vehicle a Swedish registered company controlled by Mr Serwin and the 2nd to 3rd defendants called Optimus Fonder AB (“Optimus Fonder”), which managed a UCITS Funds which comply with the ‘Undertakings for Collective Investment in Transferable Securities Directive 2009/65/EU’. Any fund classified as a UCITS fund and approved by the Swedish Financial Supervisory Authority (“SFSA”) was entitled to be listed on the PPM online platform and was available for investment by an individual pension saver. investment fund known as the Optimus High Yield fund (“Optimus Fund”). The Optimus Fund was registered with the claimant as a fund in which pension monies could be invested and the claimant invested Swedish pension savings in Optimus Fonder on behalf of Swedish pension savers where the Optimus Fund was selected by such savers for investment of their PPM account savings. The claimant alleges that between 2012 and 2013 by virtue of their control of Optimus Fonder, Mr Serwin (together with the 2nd and 3rd defendants) procured the Optimus Fund to purchase mortgage-backed securities (“MBSs”) at substantially inflated prices from companies which were themselves owned or controlled by Mr Serwin and/or the 2nd and 3rd defendants, which the Optimus Fund then sold at a loss.[11]The claimant’s case is that in the last quarter of 2013, Mr Serwin (and the 2nd and 3rd defendants) were becoming or had become concerned by the adverse attention that the Optimus Fund was attracting in Sweden and in consequence established a new UCITS investment vehicle in Malta called Falcon Funds SICAV plc (“Falcon”) for the purposes of carrying on their Swedish pension savings fraud. The claimant calls what happened thereafter the “Falcon Phase”.[12]The claimant alleges that Falcon was controlled by Mr Serwin and although Mr Ӧkten was nominally in charge of Falcon’s investment decisions, he was controlled by Mr Serwin. Funds invested by the claimant in Falcon were invested in turn by or in the name of Falcon in the purchase of exchange traded instruments (“ETIs”) and/or other securitised instruments ultimately connected to and/or owned by Mr Serwin and the 2nd to 3rd defendants including shares in Werel AB (“Werel”), a Swedish registered company formed in 2013, at artificially inflated prices. It is the claimant’s case that Mr Serwin set up Werel as a device for fraud. It was placed into bankruptcy on 24 January 2019, about a year after Falcon ceased operations. ETIs were a means of packaging up underlying illiquid investments such as mortgages of real property into an exchange-traded format, thereby permitting them to be held by UCITS funds. There is alleged to have been no legitimate commercial reason for the transactions entered into by the Optimus Fund or Falcon and that the only beneficiaries of these transactions were ultimately Mr Serwin and the 2nd and 3rd defendants. Parties Against Whom Judgment is Sought Mr Serwin – 1st Defendant

Parties Against Whom Judgment is Sought

[13]Criminal proceedings were commenced against Mr Serwin in Sweden in relation to both the Optimus and Falcon Phases. He was convicted of aggravated fraud, aiding and abetting disloyalty to a principal and aggravated giving of bribes in April 2020 in relation to his role in the Optimums Phase and those convictions were upheld on appeal in October 2020. In relation to the Falcon Phase he was convicted of gross breach of trust in March 2021. The conviction was substituted on appeal in June 2022 for the more serious offence of gross fraud. The extent to which the claimant is entitled to rely on these convictions as evidence in support of its claims in these proceedings is discussed further below. Mr Serwin has not either acknowledged service of these proceedings or served a Defence. Summary judgment has been entered against him (and other relevant defendants) in relation to the Optimus Phase. There remains one issue to be resolved in respect of the Optimus claim and that concerns interest. The issue there is whether interest is to be fixed applying Swedish or English law principles. Mr Serwin’s original family name was “Ingmanson”, but he changed that to “Serwin”. I note that in at least some of the Swedish criminal proceedings, he was referred to by the latter name and I adopt that course in this judgment. It is not suggested that his change of name is legally invalid. However, in considering quotations from documentation reproduced below, it should be remembered that references to Mr Ingmanson are references to Mr Serwin.

Mr Barbaros Ökten – 6th Defendant

[14]Mr Ökten has disappeared. He and the corporate defendants have not engaged at any stage with these proceedings. He has not either acknowledged service of these proceedings or served a Defence. 9th-10th and 12th-13th Defendants[15]The 9th and 10th defendants are English companies of which Mr Bishop was both the sole or principal shareholder and director. Both had been dissolved but were restored to the Register on 18 June 2020 for the purpose of these proceedings. They appear to be insolvent and have played no part in these proceedings. The 12th and 13th defendants are Swedish registered companies that were formerly controlled by the 3rd defendant (Mr Gergeo). They too are in insolvent liquidation. Notwithstanding that, as a matter of Swedish law the claimant is apparently entitled to judgment against them.

Issues For Determination

[16]The issues that I have to resolve are:16.1 In relation to the Optimus Phase, the applicable rate of interest for the purposes of pre-judgment interest against Mr Serwin;16.2 In relation to the Falcon Phase:16.2.1 Is the lex causae Swedish law or Maltese law?16.2.2 If the lex causae is Swedish law:16.2.3 If the lex causae is Maltese law: (a) Is Mr Ingmanson liable and to what extent? (b) Is Mr Ökten liable and to what extent? (c) Are the companies liable and to what extent?16.2.4 Does any reflective loss issue arise? What is the applicable law in respect of this issue and what does that system of law say about reflective loss?(a) Is Mr Ingmanson liable and to what extent?(b) Is Mr Ökten liable and to what extent?(c) What is the applicable rate of interest?(d) What is the applicable rate of interest?(e) Is the claimant entitled to a proprietary remedy?16.3 At an early stage during the hearing on 13 June 2025 I indicated that I needed no further argument on the interest issue that arises in relation to the Optimus Phase and that I needed no further argument concerning the applicability of Maltese law to the Falcon Phase or the relevance of the reflective loss principle. I set out my conclusions on each of these issues below together with my reasons for arriving at those conclusions.

Optimus Phase – The Interest Issue

[17]The issue that I have to resolve concerns from what date and at what rate interest should run on the judgment entered against Mr Serwin in relation to the Optimus Phase. The claimant’s case is that interest should be assessed in accordance with Swedish law; that on that basis interest accrued from the date when the damage was sustained and that the rate that should be applied is that fixed applying Swedish law (Central Bank of Sweden reference rate + 8%). I accept each of those submissions for the following reasons.[18]It is not in dispute that Swedish law is the lex causae in respect of the Optimus Phase claim. The general issue that arises is whether as a matter of English conflicts law interest issues are to be determined applying the lex causae or the lex fori, which is English law. In my judgement interest issues are to be determined applying the lex causae – see Nicholls & another v. Mapfre España Cia de Seguros y Reaseguros SA [2024] EWCA Civ 718; [2025] 1 WLR 660. This authority makes clear that the question depends on whether interest is to be regarded as a matter of substantive or procedural law applying the autonomous meaning given to those concepts for the purpose of Regulation (EC) 864/2007 (“Rome II”). Rome II continues to be part of English law, it having been retained following the UK’s exit from the EU. The test is a case specific one that involves ascertaining whether interest is so intertwined with the assessment of damages as to be in substance part of the nature and assessment of the damages or remedy claimed. Applying this approach the Court of Appeal decided in that case that interest was a matter of substance to be determined in accordance with the laws of Spain, but, in any event, even if interest was a matter of procedure and thus fell to be assessed applying statutory discretion under s. 35A of the Senior Courts Act 1981, interest should be assessed at the equivalent to the Spanish rate because a relevant factor to be taken into account included the relevant provisions of the lex causae relating to the recovery of interest and where as a matter of that law, interest was integral to the assessment of damages recoverable, that was a sufficient basis for assessing interest as being equivalent to that which would have been recoverable applying the applicable lex causae.[19]The key point that is relevant for present purposes concerns what is provided for by section 4, para. 5 of the Swedish Interest Act. This is so because the damages that have become payable in this case arise from an intentional criminal act according to the laws of Sweden. Section 4, paragraph 3 provides that “… interest on any debt for damages which are payable as a consequence of an intentional criminal act and which shall not be paid in the form of an annuity, shall accrue from the day on which the damage was sustained.” This takes effect by way of exception to the general rule of Swedish law that interest starts to accrue from thirty days following the date on which the creditor demands compensation. In all cases the applicable rate is that referred to earlier.[20]In my judgment the interest that in Swedish law is payable on damages that have become payable as a result of an intentional criminal act are intrinsically linked with the assessment of what a claimant is entitled to recover in such circumstances. The rate and period when interest starts to accrue are not penal because(a) the rate is unaffected by whether the damages are the result of an intentional criminal act and(b) the period from which interest accrues does not start to run earlier than the date on which damage is sustained. Although the rate is generous when compared to what is usually awarded as a matter of discretion in commercial cases under s. 35A of the Senior Courts Act 1981 (typically BoE Base rate + between 1 and 3%) it is mitigated by the fact that interest is simple not compounded and more particularly is a rational means of ensuring that the victims of intentional criminal acts are not left bearing any significant part of the loss caused to them. Different legal systems respond in different ways but all tend to be focussed on this critical point. Thus in this jurisdiction compound interest may be awarded where there has been an intentional breach of trust and different causation rules apply to claims formulated in deceit. Viewed in this way and taking account of each of the points made above, I am satisfied that Swedish rules on interest are intertwined with Sweden’s laws relating to the assessment of damages and for that reason interest in this case should be assessed on the basis sought by the clamant. Even if that was not correct I would have exercised my discretion under s. 35A of the Senior Courts Act 1981 by awarding interest at the rate and for the period claimed by the claimant applying the reasoning referred to Nicholls & another v. Mapfre España Cia de Seguros y Reaseguros SA (ibid).

The Lex Causae Applicable to the Falcon Phase Claim

[21]As will be apparent from the summary of the Falcon Phase claim set out above, the applicable lex causae could arguably be either Swedish or Maltese law. In my judgment however, the applicable lex causae is Maltese law. My reasons for reaching that conclusion are as follows.[22]Determination of this issue involves applying Article 4 of Rome II. This is so because that Regulation applies to the resolution of conflicts issues concerning non-contractual obligations in civil and commercial matters – see Article 1. Article 4 is concerned with the applicable rules in relation to torts and delicts. It provides:
“1. Unless otherwise provided for in this Regulation, the law applicable to a non-contractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur. 2. However, where the person claimed to be liable and the person sustaining damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply. 3. Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply. A manifestly closer connection with another country might be based in particular on a pre-existing relationship between the parties, such as a contract, that is closely connected with the tort/delict in question.” “… damage…” in Article 4(1) means “direct damage” – see Rome II, Recital (16). As Recital (17) adds, the applicable law “… should be determined on the basis of where the damage occurs, regardless of the country or countries in which the indirect consequences could occur. Accordingly, in cases of damage to … property, the country in which the damage occurs should be the country where … the property was damaged …”
. In relation to the order in which sub-articles (1) to (3) of Article 4 should be applied, Recital (18) provides that:
“The general rule in this Regulation should be the lex loci damni provided for in Article 4(1). Article 4(2) should be seen as an exception to this general principle, creating a special connection where the parties have their habitual residence in the same country. Article 4(3) should be understood as an ‘escape clause’ from Article 4(1) and (2), where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with another country.”
The factors that might require the application of Article 4(2) are primarily that Mr Ökten may have lived in Sweden at the relevant time and the 12th defendant (Gergeo Holding AB) and the 13th defendant (Gergeo Invest AB) are or were Swedish registered companies. Article 4(3) does not arise unless it is clear that the civil wrong in issue is “… manifestly more closely connected with another country.” The most cogent argument for applying Article 4(3) arises from the Falcon Phase being in substance a continuation of the Optimus Phase and involving the use of PPM moneys. “The general rule in this Regulation should be the lex loci damni provided for in Article 4(1). Article 4(2) should be seen as an exception to this general principle, creating a special connection where the parties have their habitual residence in the same country. Article 4(3) should be understood as an ‘escape clause’ from Article 4(1) and (2), where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with another country.”[23]The claimant’s primary case is that Maltese law applies to both the tortious claims and claims based upon fiduciary duty against both the individual and the corporate defendants. Its alternative case is that Swedish law applies in which case no liability can attach to the companies and only to Messrs Serwin and Ökten because the Swedish statute that is the only basis for the claimant’s claim as a matter of Swedish law requires the commission of a criminal offence with only individuals not companies being liable criminally. However, in that event the primary targets of the claim (Messrs Serwin and Ökten) would be liable whichever system of law applies.[24]No positive case has been advanced by any of the defendants with whom I am concerned on this issue. Foxton J was willing not to enter summary judgment in relation to the Falcon Phase in order to facilitate the resolution of this issue at a time when at least some of the individual defendants were actively participating in the litigation. Since then all the individuals other than Messrs Serwin and Ökten have settled with the claimant and none of the corporate defendants has chosen to appear or be represented at this trial. In my judgment the better view is that Maltese law is the applicable lex causae, I have reached that view for the following reasons.[25]The claims that are advanced in relation to Falcon are both delictual claims and claims for breach of fiduciary duty. The vehicle by which the Falcon Phase was carried into effect was Falcon, a company incorporated in Malta as I have said earlier. It was described in its initial prospectus as being “… an open-ended collective investment scheme organised as a multi-fund public limited company with variable share capital…” referred to in Maltese company law by the acronym “SICAV”. Investors acquired shares in Falcon that in turn acquired the assets which were to be invested in. Given the way in which the Swedish premium pension scheme worked, the SPA has title to any shares in investment funds that are purchased for PPM accounts so that the only investor shareholder in Falcon was the SPA.[26]Returning to the lex causae issue, in relation to the fiduciary claims, the relevant relationship is between the claimant (in its capacity as the SPA) as a shareholder in Falcon on the one hand and Falcon on the other. Maltese law impliedly governed that relationship by reason of that being the law of Falcon’s country of incorporation. Non-contractual obligations which are classified as equitable in English law (of which claims for breach of fiduciary are one) are not subject to specific rules in the Rome II Regulation – see Dicey, Morris & Collins, Conflicts of Law (16th ed.) at para. 36-057. Prior to the coming into effect of Rome I and Rome II, a claim for breach of fiduciary duty qua director was generally regarded by English law as governed by the law of the place of incorporation of the company concerned – see Base Metal Trading Ltd v Shamurin [2004] EWCA Civ 1316; [2005] 1 WLR 1157 and Fiona Trust & Holding Corp v Privalov [2010] EWHC 3199 (Comm.). I conclude that remains the law after the coming into effect of Rome II. I reach that conclusion because by Article 1(2)(d), “… the personal liability of officers and members as such for the obligations of the company or body…” is expressly excluded from the scope of Rome II. This language is materially similar to that used in Article 1(2)(e) of the Rome Convention considered by the Court of Appeal in Metal Trading Ltd v Shamurin (ibid) – see Tuckey LJ at [24] - and applied by the Court of Appeal in that case – see Tuckey LJ at [27] – [30] and Arden LJ at [65]-[66] (with whom Tuckey LJ agreed – see [57]) where she observed that “… the matters mentioned in the company law exclusion are aspects of company law, which, under generally accepted principles of the conflicts of laws in the member states, are considered to be governed by the law of the place of incorporation.” She concluded in relation to this point:
“69. In my judgment, the law of the place of incorporation applies to the duties inherent in the office of director and it is irrelevant that the alleged breach of duty was committed, or the loss incurred, in some other jurisdiction. Accordingly, these duties can only be modified by contract to the extent that the law of the place of incorporation allows. It is not open to the company and the director to contend that they have contractually varied the liabilities imposed by the law of the place of incorporation by the terms of a contract for the appointment of the director governed by some other law, unless it is also shown that the law of the place of incorporation would allow this. In the matter of directors duties - which are essential to good corporate governance and to any effective system of law regulating companies - party autonomy is the exception not the rule, and its scope is always a matter for the law of the place of incorporation.”
Given the similarity of the language used and the context in which it is used, there is no merit in any other interpretation being adopted in relation to Rome II.[27]In relation to the tortious claims, I accept the claimant’s submission that for the purposes of Art. 4(1) of Rome II, where the loss is financial, where and when direct loss occurs is to be determined by asking where money has been paid away irreversibly by the victim – see Dicey, Morris & Collins, Conflicts of Law (ibid) at 35-025 and MX1 Ltd and another v Farahzad [2018] EWHC 1041 (Ch); [2018] 1 WLR 5553 per Marcus Smith J at [39(8)-(10)]. In this case the loss in this sense occurred in Malta when money paid to Falcon by the claimant was then paid out of Falcon’s accounts in execution of what the claimant alleges to be a fraudulent scheme.[28]The residency issue does not impact materially on these conclusions. Art. 4(2) should be seen as an exception to the general principle established by Art. 4(1). It does not provide a clear alternative answer to that which follows from applying Art. 4(1) in the circumstances of this case. Mr Serwin was resident at all material times in Malta. This is the evidence given by Mr Serwin himself to the Stockholm District Court – see the judgment of that court reciting the investigations undertaken and the evidence received by that court. Whilst findings of fact made by the Swedish court are not admissible – see Hollington v Hewthorn [1943] KB 587 – that does not prevent this Court from relying upon the substance of the evidence referred to in the judgment of the Swedish court, including the contents of documents or evidence given by a witness – see Rogers v Hoyle [2014] EWCA Civ 257; [2015] QB 265 per Christopher Clarke LJ at [49] where he held that “…statements of fact contained in the report, … are evidence which the trial judge can take into account in like manner as he would any other factual evidence, giving to it such weight as he thinks fit…” and JSC BTA Bank v Ablyazov [2016] EWHC 3071 (Comm) at [24] per Laurence Rabinowitz QC where the deputy judge summarised the position as being that “… whilst the bare finding of a prior court is opinion evidence which a subsequent court cannot rely upon because the later court must make findings of fact, a reference in a judgment to the substance of evidence is evidence which the judge in a later case can take into account “in a like manner as he would any other factual evidence giving to it such weight as he thinks fit” …”, a summary approved by Henshaw J in Kazakhstan Kagazy Plc v Zhunus [2021] EWHC 3462 (Comm) at [115] and Foxton J in Lakatamia Shipping Company Ltd v Tseng Yu Hsia & anor [2023] EWHC 3023 (Comm) at [14]. I set out these principles at this stage because they are important not merely to the issue being considered here but to the more general liability issues that I consider below. There is no clear evidence as to where Mr Ökten resided. There is some documentation that suggests he had an address in Turkey or worked from an office in Malta and/or in Sweden. In my judgment that is not sufficient to oust the general rule in Article 4(1) given the residence of Mr Serwin and the location of Falcon.[29]It is true that the 12th and 13th defendants were or are registered Swedish companies. However I do not accept that should lead me to conclude that the lex causae is Swedish rather than Maltese law given all the other factors to which I have referred – that is that Mr Serwin, who is characterised by the claimant as the principal architect of the Falcon (as well as the Optimus) Phase was resident in Malta, the loss was suffered in Malta and the vehicle that was used to carry the scheme into effect was a Maltese registered entity. In addition, the purpose of relocating to Malta was to avoid adverse attention in Sweden and the mechanism of the Falcon Phase was materially different to that of the Optimus Phase as I have explained.

The Reflective Loss Issue

[30]I can take this issue more shortly. The reflective loss principle is a rule that precludes a shareholder from recovering damages equivalent to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a loss “is merely a reflection of the loss suffered by the company” – see Johnson v Gore Wood & Co [2002] 2 AC 1 in relation to the English law iteration of this principle. However, the issue that arises in this case does not concern the English law principle but is concerned with whether Maltese law applies a similar principle.[31]Whilst there is no specific evidence as to the burden of proof of an issue such as this, I have no reason to think that it would not adopt the English law approach. That approach is to require a defendant seeking to rely on the reflective loss principle to both plead and prove because it was an exclusionary rule that denies a claimant what otherwise would be his right to sue – see Shaker v Al-Bedrawi [2002] EWCA Civ 1452; [2003] Ch 350 per Peter Gibson LJ at [83].[32]None of the defendants with which I am concerned has pleaded much less proved that the reflective loss principle is a principle applied by Maltese law. In my judgment this is enough to dispose of this issue in the circumstances of this case. The issue does not arise in any event. Professor Zammit is the claimant’s expert on Maltese law. In summary(a) Maltese law recognises a version of the no reflective loss principle; but(b) Maltese law approaches the issue pragmatically and will not generally permit the rule to defeat the principle that victims of torts should be fully compensated with the result that a shareholder will be permitted to sue in his or her own name to recover damages for the harm a company suffers where it is impractical or impossible for a shareholder to require the company to take action – see(c) (C) on page 35 of his second report. Moreover, generally the rule will apply in Malta only where (a) the claimant’s loss is not the same loss or a reflection of the loss suffered by the company (i.e. for personal loss distinct from that suffered by the claimant) and (b) the company cannot seek the loss concerned itself – see second report, paras. 66 – 68.[33]He also considers it likely that the principles will not apply at all in relation to claims based on fraud because of the strictly applied “fraus omnia corrumpit” civil law concept – see para. 76. He concludes therefore that the Maltese courts will apply the reflective loss principles but only if:
“(i) the personal loss suffered by the plaintiff/shareholder is not distinct from that suffered by the company and: (ii) the plaintiff/shareholder still has the opportunity to work within the company structures to ensure that the company itself takes the legal action he was proposing to take personally.”
Although Professor Zammit characterises this as being “… the comprehensive transplantation of the reflective loss rule from Common law judgments into the Maltese legal system”, he also recognises that Maltese law is different to the extent it recognises an exception to the reflective loss principle “… where it would be in practice impossible for the plaintiff/shareholder to ensure that the company would itself take action to sue for the reduction in its share-value resulting from the defendant’s culpably negligent conduct.” Aside from this, the fraud exception noted earlier is one that will be strictly applied:
“…the maxim that fraus omnia corrumpit occupies a foundational place within the Maltese legal system, tantamount in practice to a rule of Public Policy; although it may not always be appropriate to call it such. This rule expresses the general Roman law actio and exceptio doli - which have survived as a primary source of law into contemporary Maltese law, partly in a codified manner and partly as an unwritten basic principle. The Maltese Courts have repeated on more than one occasion that they would not hesitate to ignore the separate legal personality of a company if this was what was necessary to investigate allegations of fraud and/or provide a remedy for fraud.”
Where that principle is engaged then “… a Maltese Court will not require proof either that the personal loss of the plaintiff can be distinguished from that of the company, or that the plaintiff is unable to act to reclaim the damages suffered through the company’s structures in order to allow the plaintiff shareholder access to an action in delict to obtain full compensation of all the harm she or he suffered.” Whilst strictly it is for me to apply what Professor Zammit proves to be the law of Malta, he adds that in the circumstances of this case, “… a Maltese court would feel duty bound to ignore the separate legal personality of Falcon; thereby positioning itself appropriately to investigate the fraud fully and consequently to determine the responsibility of each of the persons involved in the fraud and provide a restitutio in integrum to the Claimant.” Aside from this, Professor Zammit makes the point that it would now be impossible or impractical for Falcon to sue for the losses claimed in these proceedings by the claimant because Falcon has already settled its claims against Mr Serwin at least for €958,665.70 thereby making it impossible for the claimant to sue him for the full amount of the loss and damage it claims to have suffered and in any event Falcon is subject to control by KPMG as the Competent Person and could not be compelled by the claimant to sue in respect of the liabilities it has incurred in respect of each of the sub funds it operated.[34]I accept this evidence as being accurately reflective of Maltese law. Indeed, there is no other evidence on which to form any other view. In consequence the reflective loss principle is not an impediment to the claims brought by the claimant in these proceedings because(a) it ought to have no application in any event to a claim based on an acquisition of shares which are worth less than their claimed value at the time of their acquisition;(b) the losses claimed are not reflective of losses suffered by Falcon;(c) the reflective loss principle would be of no application applying Maltese law because there was no practical means by which the claimant could have forced Falcon to sue the defendants for the recovery of the claimant’s losses both because (i) on a proper analysis it did not control Falcon (because it held all the investment but none of the founder shares, which were the shares with the relevant voting rights) and (ii) Falcon had settled with Mr Serwin and so could not on any view proceed against him again given the terms of its settlement agreement with him; and(d) because in any event, Maltese law would not permit application of the principle in a claim based on fraud by operation of the fraus omnia corrumpit principle. This is a conclusion I can reach at this stage because in relation to fraud whilst it must necessarily be assumptive at this stage, this claim is not advanced on any other basis save that the claimant has been the victim of a massive fraud with the result that the claim can only either succeed on that basis or fail altogether.

The Liability and Quantum Issues

[35]The claimant alleges and the evidence shows that Falcon was established by Mr Serwin together with Messrs Bishop and Gergeo (both of whom were defendants to these proceedings but have compromised the claims made against them by the claimant). Falcon was registered on the Swedish pension platform and specifically targeted Swedish pension savers. Although Falcon was apparently established in a conventional manner with independent investment managers being appointed for the purpose of purchasing appropriate investments on behalf of the Falcon Fund, in fact Mr Serwin secured the appointment of investment managers who at the instigation of Mr Serwin (together with Messrs Bishop and Gergeo) purchased synthetic or derivative products known as exchange traded instruments (“ETIs”) from entities controlled by Mr Serwin and Messrs Bishop and Gergeo. An ETI is supposedly an asset backed instrument the value of which is linked to the assets held by the bond issuer. It is a financial product that permits what would otherwise be illiquid assets to be traded on exchanges in much the same way that shares in publicly owned companies are dealt with. The fund was also used to purchase shares in Werel, again at artificially inflated prices.[36]The purchases that form the basis of the Falcon element of the claim are set out again below: I address each of these purchases in more detail below. The total loss claimed by reference to these transactions totals €60.7m.[37]In addition the claimant maintains that it is entitled to recover all the losses attributable to a series of disposals between September 2015 and August 2016 of other investments made by Falcon containing pension savers’ funds, which it is alleged were purchased collectively for €45.7m and sold collectively for sums totalling €23.6m thereby resulting (so it is alleged) in a loss of €22.1m. In the course of the hearing I expressed some doubts about this claim since the investments purchased all appear to be bona fide investments and the loss on sale being the result of the movement in market prices between the date the products were purchased and the date when they were sold. Whilst I can see that a claim might be made in relation to these items if and to the extent it could be shown that fraudulently enhanced commissions had been charged by entities controlled by the defendants who acted as intermediaries in the purchase of these items by Falcon, it is difficult to see how losses on subsequent sales of these products can have been the result of the pleaded fraudulent scheme. At the conclusion of the hearing it was left that the claimant would submit supplemental written submissions in relation to this part of the claim. I return to this issue at the end of this judgment.[38]Mr Serwin instigated the formation of Falcon and its application to the Maltese Financial Services Authority for the licences that enabled it to operate as a UCITS fund and so become registered on the Swedish PPM platform referred to earlier in this judgment so as thereby to enable Swedish savers acting by the SPA to acquire investment shares in Falcon. In an email from Mr Serwin to Mr Bishop dated 27 September 2013, Mr Serwin described the structure that was planned with Falcon’s fund being managed and investment decisions taken by a fund manager called Calamatta Cuschieri Investment Management Ltd (“Calamatta”) with the Bank of Valetta acting as custodian and another entity (Valetta Fund Services (“VFS”)) administering “… back office and structure…”. Mr Serwin went on to say that he had appointed a board of directors of Falcon but that he (together with at least Mr Bishop) was entitled to buy all the shares in Falcon at any time, could change the fund manager for any other licenced manager and then continued that this meant “… we are in control, but it won’t show to anyone which is good right now, given the situation we´re in.” The latter reference was to the scrutiny to which the Optimus arrangements was then being subjected in Sweden. He added that his plan was that “[w]e get our own … licensed company ready in 2014 and we take over the management of the three funds and the shares of the SICAV.”[39]The duplicity involved in this exercise is apparent in part from the unchallenged evidence of Mr Antonio Fenech, a former Finance Minister of Malta who became a non-executive director of Falcon on 20 November 2013. He was approached via the intermediaries identified by him in his witness statement and at that time says he was informed that the “… purpose of Falcon was to act as an authorised investment fund to Swedish pensioners on the Swedish authorised pensions platform…” and that the individual behind the project was Mr Serwin. His understanding derived from his conversations with Mr Serwin was that Mr Serwin had created the whole Falcon structure but that he was “… just the promoter who would market the fund on the Swedish pensions platform.” In fact that was untrue as is apparent from the outset as the email referred to above demonstrates.[40]In any event, on 22 November 2013, Falcon was incorporated in Malta as a public limited investment company, and on 27 December 2013(a) the Maltese Financial Services Authority granted it the necessary licences;(b) Calamatta was appointed Falcon’s investment manager;(c) Bank of Valetta was appointed custodian and(d) VFS was appointed as Falcon’s administrator. Falcon established and operated three sub-funds: (i) Falcon Aggressive Fund; (ii) Falcon Balanced Fund; and (iii) Falcon Cautious Fund and on 5 August 2014, Falcon was admitted to the PPM platform, and the sub-funds became available for Swedish pension savers to invest in by the SPA acquiring investor shares in each of the sub funds.[41]Thereafter Mr Serwin took steps to obtain control of the Falcon structure so as to facilitate the investments that are the subject matter of the Falcon Phase claim. The first of these steps was to replace Calamatta as Falcon’s investment manager. As I have explained this role was critical because it was the investment manager that took the investment decisions on behalf of Falcon. As Mr Fenech states in his statement, Calamatta was a “very reputable organisation” whose involvement had led him to think that Falcon was a “… a bona fide operation, well intended and well structured.” He had understood that Mr Serwin “… was setting up his own asset management company, Falcon Asset Management Limited (“FAML”), which would assume the role of the fund manager for Falcon when Emil obtained the necessary license for FAML…” from the Maltese Financial Services Authority.[42]Mr Fenech says in his statement that Calamatta “… informed us that the licensing process for FAML was taking too long and since Calamatta do not usually operate third-party funds, they would prefer us to move Falcon to a different asset manager if the situation was going to prolong any further.” This led to the identification as a replacement of an entity called Temple Asset Management Limited (“TAM”). This is not reflective of the Falcon minutes in relation to this issue. It is necessary to emphasise at this point that Mr Serwin was anxious to distance himself from Falcon. This is apparent from the email referred to above and is also apparent from email responses to the SPA concerning Mr Serwin’s involvement in Falcon. In fact he was intimately concerned with its operations. He had a dedicated Falcon email address, he met at least its initial costs – see 23/14(iv) of the Falcon board meeting minutes dated 10 July 2014 – and he attended at least 13 of the Falcon board meetings in the period between April 2014 and June 2016, in each case being described as attending as “Observer” or similar. Notwithstanding all this, in response to a query from the SPA Mr Camilleri of VFS stated that Mr Serwin “…has no role in the Falcon set up. He is neither a founder shareholder, nor a director, nor any other appointee of the scheme or its service providers. In effect Emil results to us as having been the “initiator” of the initiative, which was at a later stage “taken over” by Stellum in Sweden…” The reference to “Stellum” is to Stellum Kapitalforvaltning AB (“Stellum”), a Swedish entity that acted as agent for Falcon in Sweden. It is said by the claimant to be controlled by Mr Roger Hassanov, an individual said to be an associate of Mr Serwin who was a director of the 10th defendant from 25 November 2015 until 25 January 2016. I infer that Mr Hassanov and Mr Serwin were associates at the material times given the involvement of Stellum as a front to conceal the involvement of Mr Serwin in the affairs of Falcon from the SPA amongst others.[43]I return to the point concerning the reasons for replacing Calamatta with TAM. Contrary to what is said by Mr Fenech in his statement, the minutes for the Falcon board meeting for 21 October 2014 (attended by Mr Serwin as “Observer”, chaired by Mr Fenech) record that:
“The Board of Directors of the Company having taken note of the letter received by Stellum requesting the Board of Directors of the Company to consider assigning the management of the portfolio to Mr Barbaros Okten, who has extensive experience in the Swedish market and knowledge of the investment appetite of the investors in the various funds. From discussions held with Calamatta Cuschieri Investment Management Limited it emerged that it is not their policy to engage a third party as their portfolio manager and that however they would not stand in the way of the Board of Directors of the Company should they wish to pursue this further and thus consider an alternative arrangement which may not involve directly Calamatta Cuschieri Investment Management Limited. Following discussion, the Board of Directors of the Company RESOLVED to favourably consider the request of Stellum for the appointment of Mr Barbaros Okten as the portfolio manager of the Company's sub-funds and to authorise any one Director to negotiate the terms of appointment with Temple Asset Management limited, which company will be shortly engaging Mr Barbros Okten.”
[44]The points that emerge from this document are that(a) Stellum ostensibly wished Calamatta to appoint Mr Ökten as manager of the Falcon portfolios;(b) Calamatta was not prepared to do so; and(c) the board of Falcon were nonetheless willing to replace Calamatta with TAM for the purpose of facilitating Mr Ökten’s appointment as manager of the Falcon portfolios. In my judgment this is significant because (i) the emails referred to earlier demonstrate the connection between Stellum and Mr Serwin and (ii) the minutes demonstrate the degree of actual control exercised by Mr Serwin over Falcon. It demonstrates the importance that Mr Serwin placed on Mr Ökten’s appointment as manager of the Falcon portfolios. Mr Fenech’s evidence is that it was Mr Serwin who introduced TAM. I have no doubt that is correct in the circumstances. I have no doubt either that Mr Serwin wanted Mr Ökten appointed in order to seize or increase control over Falcon’s investment decisions. The importance that Mr Serwin placed on Mr Ökten is apparent from the email dated 22 January 2015 from Mr Serwin to Mr Bishop in which he said:
“Jan and Ulf is a big problem, they-re trying to convince Mats not to bring [Mr Ökten] in. They need to get out of the office now. They could jeopardize our whole business. I’ll talk to Roger to calm Mats down, but please get them out of there asap and help me push Mats to do the right thing here.”
[45]On 30 October 2014, there was a meeting of Falcon’s board chaired by Mr Fenech. That meeting was attended by Mr Serwin who is described as being an “Observer” at which it was resolved to terminate Calamatta’s mandate and appoint TAM as the investment manager of Falcon and its sub-funds with effect from 1 January 2015. These arrangements were carried into effect by an Investment Management Agreement with TAM with Mr Ökten being the portfolio manager. Mr Ökten was handsomely rewarded for his activities for which he billed Solid Venture Capital Limited (“SVC”) whose shareholders were Messrs Serwin and Gergeo until 7 October 2015 and Mr Gergeo thereafter. Thereafter Mr Serwin in combination with Mr Bishop and Mr Gergeo exercised control over Falcon’s investments. Their involvement is apparent from the documentation relevant to each of the investments the subject of this claim. Mr Ökten was the portfolio manager of TAM until 28 May 2016, at which point he resigned and disappeared.[46]I now turn to each of the ETIs the subject of this claim. Each was created by Argentarius ETI Management Ltd (“Argentarius”), a Maltese securitisation agent controlled by Mr Andreas Wölfl. The underlying structure of each of the ETIs was broadly similar with there being an issuer of the ETI concerned and a collateral obligor with the issuer issuing the traded securities and the collateral obligor being a wholly owned subsidiary of the issuer that typically issues a performance linked bond to the issuer which represents the collateral. Although it will be necessary to consider each of the products the subject of this claim, certain points of general application should be noted at the outset. Firstly, if an asset backed security or bond was being purchased as an investment by a funder representing the Swedish savers’ life savings, it was reasonably to be expected that at least some “due diligence” investigations would have been carried out by the investment manager to test the availability of the alleged asset base and its likely value. Where what is being purchased is a shareholding in a company then it is to be expected that an attempt would be made to value the company by at least one of the conventionally used valuation models (net asset, multiplier of profits or EBITDA and discounted cash flow being frequently used and familiar models). No such valuations were carried out or if they were records of them were not kept.

Solid Venture P2P ETI

[47]On 24 February 2015 and 26 May 2015, Falcon acquired 100 units of the Solid Venture P2P ETI for €10.1m. The issuer was an entity named Delta1 Securities Plc., a Maltese registered company. The ETI represented debt that was repayable only upon receipt by the Issuer of payments or proceeds from the collateral. The collateral consisted of performance linked bonds issued by Al Undertaking XII Inc., a public limited company incorporated in St Vincent and the Grenadines and constituted as a wholly owned subsidiary of the Issuer. As the Securities Note for this product stated:
“As holder of such bonds, the Issuer shall bear not only the risk of the underlying assets but also the Collateral Obligor's risk. Such bonds do not offer a principal protection but would be redeemed at a predetermined price linked to the performance of: (i) a managed account held at Sparkasse Bank Malta plc; and (ii) registered, non-listed bonds held directly by the Collateral Obligor.”
TAM described the product as being “… a securitisation (UCITS eligible) of a loan to Solid Venture Capital (SVC) Ltd in the form of a performance linked bond.” The purpose of the loan was said to be for investment “… in Peer to Peer lending platforms (P2P) either as equity or more likely debt. SVC will manage this aspect with no input from the PM's etc. SVC will take its share of the profits raised (for identifying, managing the PE investment) and pass on 12% to the fund. The fund will therefore receive a high yield for little ongoing input from the PM's.” The role of Mr Serwin in the acquisition of this investment by Falcon is apparent from an Argentarius internal email exchange to Mr Wölfl from Mr Philip Eaton Richards then an employee of Argentarius that:
“Temple Asset Management is now appointed as asset manager and so Emil believes that he can get subscriptions from Falcon funds in the first week of January for this ETI and for the next one which he is happy to pay for once this one is launched. He mentioned 4 - 5 million which would be 5% of the fund. So I think Emil is a bit more relaxed now he knows it can happen January as long as we have everything in place.”
[48]The asset manager referred to can only have been Mr Ökten. At the time when this was taking place, Mr Serwin was a joint owner and director with Mr Gergeo of SVC. Thus in relation to this transaction Mr Serwin was both procuring acceptance by Falcon of the proposed investment whilst at the same time being ultimately a beneficiary of the investment by virtue of his shareholding in SVC. Of the €10.1m paid by Falcon for this investment, €9.9m was transferred to SVC Ltd – passed through the accounts of Delta1 Securities Plc and AI Undertaking XII Inc – see the documentation referred to at footnote 49 in the first report of Mr Holt, the forensic accounting witness acting on behalf of the claimant. Of that sum, €900,000 was paid to Mr Serwin and €900,000 was paid to Werel and €100,000 to Gergeo Invest. Another part of the sum invested was invested by SVC in a loan to a peer-to-peer lending operation carried on by a Swedish entity called Trustbuddy AB (“Trustbuddy”). The loan was apparently on commercial terms but was lost when Trustbuddy was placed in insolvent liquidation in October 2015. The total sum actually lent using the ETI generated funds appears to have been €2.4m. When Falcon disposed of its interest in the Solid Venture P2P ETI, it appeared to recover €7.4m, but in fact the redemption monies were obtained by transferring the claimant’s monies invested in other ETI investments. The detail leading to this last conclusion is complex and is not something that I need set out in full. It is addressed by Mr Holt in paras. 6.31 – 6.46 of his first report and is evidenced by the documentation that he refers to in those paragraphs.[49]On the basis of this material, the claimant submits that the Solid Venture P2P ETI was a fraudulent investment the purpose of which was to transfer money to Mr Serwin and his associates via SVC (UK). I accept this submission because no serious attempt was made to justify how this investment could properly be adopted by a fund investing in low or balanced risk funds on behalf of pension savers and because it provided a risk-free way for Mr Serwin to gain access to and use pension saver funds. I also accept that on a proper analysis Falcon lost its entire investment, because the sums received back were funds received from later similarly structured investments. However, I also consider the claimant’s approach which is to treat the repayment apparently made as such a repayment to be correct because the sums used for that purpose will be recovered by reference to the later schemes if and to the extent those are shown to have been fraudulent.

Boardwalk Real Estate ETI

[50]Between 1 April and 25 September 2015, Falcon acquired a total of 147 units of Boardwalk Real Estate ETI for €15.2m. The structure was in many ways similar to the Solid Venture P2P ETI. The Securities Note dated 12 March 2015, was in broadly similar terms. The issuer was called ETI Securities Plc; the collateral was to be performance linked bonds issued by AI Undertaking Ill Inc., a public limited company incorporated in St Vincent and the Grenadines that was wholly owned by ETI Securities Plc., which in turn was said to have invested in(i) a managed account held at Sparkasse Bank Malta plc; and(ii) registered, non-listed bonds held directly by the Collateral Obligor. However, by an agreement between Boardwalk Co Ltd, ETI Securities Ltd and AI Undertaking III Inc dated 17 March 2015, it was recorded that ETI Securities Ltd had agreed to “… utilise all proceeds of the Securities (net of certain agreed costs) to purchase (through its wholly-owned subsidiary AIU), certain bonds to be issued by Boardwalk (“Bonds”)”. The agreement specified that the maximum return from the Boardwalk bonds would be 12%. It was common ground between the claimant and Mr Gergeo that Boardwalk (the 11th defendant in these proceedings) was at all material times controlled by Mr Gergeo.[51]In fact Al Undertaking Ill Inc used the sums invested by Falcon(a) on 18 September 2015, to purchase 1,000 Werel shares from Gergeo Holding for €5m;(b) on 13 October 2015, to invest €5m in Werel bonds; and on 7 December 2015, to purchase a further 1,000 shares in Werel this time from Boardwalk for €4.9m. The share purchases imply that Werel had a value of about €50m at the date when the shares were purchased. As I have said no attempt was made by Falcon or TAM or Mr Ökten to value the company whether using any conventional company valuation methodology or at all. This issue was the subject of an expert report from Ms Faye Hall. As she says at paragraph 6.2.3 of her report:
“…on 15 July 2015, Gergeo Holding AB acquired from SVC Malta 5,500 shares (representing a 55% stake) in Werel (this is shown in the share registry as two transactions but relate to one share purchase agreement). This transaction occurred at a price of SEK 100/share (or approximately EUR 11/share at an exchange rate of 9.329). Gergeo Holding AB then sold 1,000 shares (representing a 10% stake) in Werel on 18 September 2015 for SEK 46,081/share (or EUR 4,990/share (at an exchange rate of 9.328). Based on the financial information that I have seen, I do not understand how a valuation of Werel (as a whole) of SEK 460.89 million as at 18 September 2015 could have been calculated or supported, or how the valuation could have changed so significantly, without a significant milestone being reached or a significant reduction in Werel’s risk being achieved between 15 July 2015 and 18 September 2015.”
I accept this evidence and conclude that there was no honest or commercial justifiable basis for the price difference. As Ms Hall adds at para. 6.2.8 of her report, “… Gergeo Holding AB benefitted from buying and selling shares in Werel and realised a gain of SEK 46m from holding 1,000 shares for two months”. Using her conversion rate this equates to about €4.932m.[52]Aside from this €4.9m was paid to Boardwalk on 8 April 2015. Of that, €3.3m was probably used to acquire 638 newly issued shares in Werel AB on 16 September 2015. Ms Hall has considered that transaction in terms that I accept. She concludes that “… the 100% pro-rated value of Werel’s shares at that point in time was SEK 500.2 million or EUR 53.7 million. Based on the financial information that I have seen I do not understand how a SEK 500.2 million valuation of Werel as at October 2015 could have been calculated or supported.…” This is precisely the same point as Ms Hall made in relation to the sale of the existing Werel shares referred to above. As before there was a partial redemption but again as before this was funded by payment made from other, later, Falcon investments rather than a redemption in accordance with the terms of the Security Note.[53]The claimant submits and I accept that the Boardwalk Real Estate ETI investment is one that I should conclude was fraudulent. It was a mechanism for transferring money belonging to Swedish pension savers to Mr Serwin and his associates. This was achieved in part by the sale of shares in Werel at what I conclude was a fraudulently inflated price. It resulted in a loss to the claimant (net of the supposed redemption) of €9.5m.

The WSV Pro Mittelstand ETI

[54]On 17 September 2015, Falcon acquired 60 units of WSV Pro Mittelstand ETI (“WSV ETI”) for €6.0 million. The WSV ETI was issued by Delta1 Securities Plc. The collateral was to be in the form of performance bonds issued by AI Undertaking VIII Inc., a public limited company incorporated in St Vincent and the Grenadines and a wholly owned subsidiary of Delta1 Securities Plc, linked to the performance of a trading account held at Dr Willburger & Schluchter Wermögensmanagement AG.[55]The investment was originally used to acquire units of a currency fund called Wakett Currency Fund. The investment in Wakett Currency Fund was redeemed in January 2016 for €5.9m. €5.8m was then converted to US$6.2 million and transferred to a UK-registered company called Optimus Socially Responsible Investment Ltd (“OSRI”) which was owned beneficially by Mr Bishop who was also its director. Mr Holt’s evidence, based on the chronological documentation available, is that from this sum US$5.7 million was paid to ABS Investment Group, a US registered company controlled by Mr Bishop which in turn transferred(i) US$3.2m to Mr Serwin’s UBS Jersey bank account;(ii) US$1.5m was paid to SVC and(iii) US$1m was paid out in total to various individuals including Mr Bishop, members of his family and Optimus Fonder, whose role in the Optimus Phase I described much earlier in this judgment. From the US$3.2m credited to Mr Serwin’s UBS Jersey bank account, (a) US$1.5m was transferred to SVC; (b) US$700,000 was transferred to Mr Serwin’s Lloyds Bank account and (c) the balance was paid out to various entities or individuals including Mr Gergeo. Of the US$3m paid to SVC as described above, US$2.8m was utilised to pay for Falcon’s redemption of its investment in the Solid Venture P2P ETI.[56]This ostensible investment suffers from all the hallmarks that apply to those that preceded it – that is there was no appraisal of the investment by TAM or Mr Ökten or if there was there is no documentation that demonstrates there was any such appraisal. Following redemption by the Wakett Currency Fund, there was no appraisal by either TAM or Mr Ökten (or no documentation showing any such appraisal) concerning the reinvestment of the redeemed funds in ORSI. Given how the funds were expended this is unsurprising. It was not ultimately used for any of the purposes that the investments were supposedly to be used for but was used in various ways described above for the benefit of Mr Bishop by reason of his ownership and control of SVC and Messrs Serwin and Gergeo.

The Reditum Bond

[57]On 15 December 2015, Falcon invested €15.4m into Fixed Rate Notes issued by Luxembourg-based company Reditum SA (“Reditum”), split between the Cautious Fund, which acquired 1,500 bonds and the Balance Fund, which acquired 13,500 bonds. This was an entirely fraudulent investment which inferentially was engineered by Mr Serwin for the benefit of himself and others interested in Werel. I reach that conclusion for the following reasons.[58]First the bond was illiquid and was entirely unsecured even though the business of Reditum was that of real estate investment. Secondly, it was not in truth an investment in Reditum at all but was a mechanism for using money belonging to Swedish pension savers to acquire shares in Werel for the ultimate benefit of Mr Serwin and its other shareholders. Reditum lent €12.9m of the proceeds to a Dutch company within the same group, Larmag Real Estate 2 BV, and on 9 December 2015, another Larmag company, Larmag Energy Group BV (“Larmag” or “LEG”), bought €3.1m of Werel shares from Boardwalk (which it will be recalled was at all times ultimately beneficially owned by Mr Gergeo). On 18 December 2015 Larmag subscribed for a further €4.4m of shares from Werel directly.[59]In November 2018, Reditum’s Maltese lawyers, GVZH wrote to Falcon and KPMG Malta (in its capacity as Competent Person of Falcon and/or its sub funds) on behalf of Reditum and the Larmag entities. In that letter, Reditum states that:
“As you may or may not be aware of, Falcon Fund purchased €15 million in Reditum bonds and during the negotiations, the broker who introduced the bond investment also presented an opportunity for Larmag Group to invest in Werel AB and connected the two transactions. Shortly after the Falcon Fund invested in Reditum bonds LEG invested approx. €7,5 million in Werel AB which resulted in a minority shareholder position. LEG also later in mid-2016 invested and additional approx. €2.5 million in Werel AB shares. LEG is part of the Larmag Group. The €10 million investment in Werel AB shares that LEG undertook became worthless because the majority shareholder in Werel was taking funds out of the company in form of unwarranted management (and other) fees. Werel AB, as your client well knows, has no residual value and is in a bankrupt state causing LEG to write down its investment to zero. Larmag Group has not profited in any way shape or form from its investment in Werel, it has in fact likely lost more than any other single party that has suffered damages from the actions of the persons controlling Falcon Fund and Werel AB.”
[60]The Larmag Group was at all material times controlled and ultimately beneficially owned by Mr Lars-Erik Magnusson (“Mr Magnusson”). He was interviewed in relation to Larmag Group's investment in Werel by the Swedish Economic Crime Authority on 18 September 2019. In the course of that interview, Mr Magnusson stated that initial contact was made with Reditium in relation to Falcon by Avalon Capital, a Zurich based brokerage that had acted on behalf of the Larmag Group in the past, the principals of which were Messrs Patrik Sternek and Christer Andersson. In the course of that conversation, Mr Magnusson was asked why Falcon wished to invest in Reditum to which he responded:
“Christer said that they are interested in buying up to 15 million. He said that it may facilitate the deal if Larmag wants to buy into a company called Werel. Larmag was interested in the energy sector. Had it been another sector, they would not have done so.”
Werel’s ostensible business was the retail sale of electricity. According to Mr Magnusson, it was access to Werel’s 40,000 customer list that was attractive. He added that “… Andersson said it could facilitate the deal if they entered Werel. Werel fitted Larmag. They went into Werel after they got the money.”[61]From the €15.4m paid by Falcon to Reditum, €3.1m was transferred to Boardwalk for 638 Werel shares. As Ms Hall states in para. 6.2.16 of her report, based on this transaction the 100% pro-rated value of Werel’s shares would have been €51.6m. 11 days later a further €4.4m was paid to Werel for the issue of 862 shares, which as Ms Hall says in para. 6.2.17 of her report implies that the 100% pro-rated value of Werel’s shares would have been SEK 546.3 million or €58.8m. For the reasons explained earlier that cannot be justified on any identified objective basis applying any conventional company valuation methodology. As Ms Hall also observes in para. 6.2.18 of her report, “… within a period of 11 days the pro-rated value of Werel’s shares increased from EUR 52.7 million to EUR 58.8 million, an increase of approximately 11.5%. I have not seen any evidence to support such an increase in Werel’s value and in my view, an increase in value of this magnitude would not be easy to explain without significant changes in the fundamental operations of the Company in the same short time frame.” These points (for which there is no answer) lead me to conclude that the sum paid to Reditum is likely to have been grossly inflated for the purpose of enabling the Werel shares to be acquired at a grossly inflated price with Reditum having no interest in the price paid because it was not its money and its complicity having been bought by the part of the payment it kept, which it would not have received but for its agreement to make the onward payment for the Werel shares. I consider this conclusion is amply supported by the absence of any attempt by or on behalf of Reditum to carry out any due diligence in relation to Werel of any substance or any discussion of any sort concerning the increase in cost over the 11-day period. Whilst I accept that Mr Serwin is clearly liable in respect of this transaction, it is less clear how Mr Ökten could be said to have been since there is no obvious involvement of TAM in any aspect of this transaction.

The Nordic Power ETI

[62]On 3 February 2016, Falcon acquired 51 units of Nordic Power ETI for €5.1m. The structure of this product was similar to the other ETIs considered already. The collateral obligor was Nordic Power Inc (“NPI”), a company registered in St. Vincent and the Grenadines, consisting of performance linked bonds issued by NPI linked to the performance of:(i) a managed account held at Sparkasse Bank Malta plc; and(ii) registered, non-listed securities held directly by NPI. In contemplation of the issue of the Nordic Power ETI, by an agreement dated 21 January 2016, made between (i) NPI, (ii) the issuer of the Nordic Power ETI and(iii) the 10th defendant (an English registered company beneficially owned by Mr Bishop), the issuer agreed to procure that its wholly owned subsidiary NPI would utilise all the proceeds to purchase bonds to be issued by the 10th defendant. Pursuant to these arrangements, NPI transferred €5m to the 10th defendant. In March 2016, the 10th defendant paid €4.4m to SVC ostensibly for 1000 shares in Werel. However, SVC did not own the shares, which were owned by the 12th defendant. These arrangements are opaque but Mr Holt’s evidence (which I accept in the absence of any contradiction) is that the 10th defendant appears to have made this payment in order to give effect to a loan agreement between SVC and the 12th defendant by which the latter agreed to lend €4.4m to the former. If this transaction was a real one that would have left SVC indebted to the 12th defendant in that sum together with such interest as might have been payable under the loan agreement. However, on 4 March 2017, that loan was waived by a written agreement that purports to have that effect. In April 2017, the 1000 shares in Werel were transferred by the 10th defendant as settlement of its debt to NPI under the bond agreement referred to earlier apparently pursuant to a settlement deed dated 13 April 2017 signed (amongst others) by Mr Bishop on behalf of the 10th defendant and Mr. Wölfl on behalf of NPI. The disclosure position is highly unsatisfactory because the claimant has been dependent largely on documentation that was seized as part of the Swedish criminal investigation. There is a document which purports to be a “Fair Value Calculation” of the Nordic Power ETI as at 31 December 2016. Who prepared this document and why is unknown as is the source of the information contained within it. On its face however it values the ETI at €4,997,344.09. However, a similar document dated 6 January 2017 purports to value the ETI at minus €2,902.49. Ms Hall has attempted to rationalise this without success – as she put it at paragraph 5.2.12 of her report, this “… represents a strong indication that the value of the collateral bonds (and therefore the shares in Werel) at previous dates may not have been reliable valuations. Given the above, it is not clear whether Werel, and consequently the collateral bonds issued by Energy Everything Investments PLC, were valued accurately at any date.”[63]There was no appraisal of this investment by TAM although Mr. Wölfl (who apparently acted on behalf of NPI and the 10th defendant) attributed it to a desire by TAM to invest Falcon funds in Werel shares. Since those were not listed, TAM asked Argentarius to create the ETI structure that would enable Falcon acting by TAM to acquire Werel shares indirectly at prices to be determined by TAM in its capacity as investment manager for Falcon. What is clear is that the acquisition of the ETI by Falcon was executed on its behalf by TAM as is apparent from the security dealing forms dated 22 January 2016 each of which were signed by Mr Farrell. Mr Farrell occupied a senior position in TAM, akin to Director and was TAM’s ultimate owner.[64]In light of the material I have summarised above, I accept the claimant’s submission that the Nordic Power ETI is impossible to justify commercially and that the (or the probable) purpose of the arrangement was to transfer money ultimately to Mr Serwin and those associated with him. That this was the probable purpose of the investment derives significant support from Mr Holt’s analysis of what became of the sums received by SVC at para. 10.26 and following of his report and in particular the payments referred to in Tables 10.2 and 10.3, which summarise the documentary material as showing that the payment to SVC financed amongst other payments, £600,000 to SVC’s Metro bank account, a payment of US$107,000 to a Croatian entity for unspecified “consultancy services”, a payment of £250,000 to Union Investment Management Ltd for unspecified purposes, and a payment of £100,000 to Hipgnosis Music for unspecified purposes amongst others. Table 10.3 records payments to HM Revenue and Customs of £400,000, a payment of £100,000 to Hipgnosis Music for unspecified purposes and multiple transfers to third parties for purposes that are unclear.

The Median Trust and Viceroy Industrials Bonds

[65]Between June and September 2016, Falcon paid €12.5m to each of two Luxembourg-registered companies, Median Trust SA (“Median”) and Viceroy Industrials SA (“Viceroy”), in each case for bonds issued by those companies (respectively hereafter “Median Bonds” and “Viceroy Bonds”). The circumstances of these payments and what became of those sums is set out in Mr Holt’s report which in turn is based on an analysis of the financial documents that are available being mainly those supplied by the Swedish prosecution authority. I accept this analysis in the absence of any alternative and because it is consistent with the contents of the contemporaneous documentation referred to by Mr Holt. At the time when these investments were made, both Median and Viceroy were in default and had entered insolvency procedures. Indeed, both had been in default under the bonds since May 2016.[66]In the result Falcon disposed of the bonds on 7 (Median) and 22 (Viceroy) November 2017 to Abalone Asset Management Limited (“Abalone”) by Falcon’s competent person KPMG for a total of €1m thereby suffering a net loss of €24m. The bonds were sold by Abalone to Mr Klas Göran Karlsson, who was a board member of the 12th and 13th defendants from 8 September 2017. He purchased them for €752,850 each on 15 November (Median) and 28 November (Viceroy) 2017. Mr Holt explains how the funds used by Mr Karlsson originated from, or are connected with, the same funds which Falcon had used to initially acquire the bonds in June and September 2016 by reason of various interconnected transactions and parties. It is not necessary that I set out in detail how this has been made good because it has not been disputed. In summary however, those funds originated from the 12th defendant either directly or indirectly – see paras. 3.9-3.27 of Mr Holt’s third report and the contemporaneous documentation there referred to. Mr Karlsson then sold them in January 2018 (52 (Median) and 38 (Viceroy) days later) for €4,992,400 each. It is now apparent that this was orchestrated by Mr Serwin – see his email to Mr Karlsson of 1 November 2017. The sums so received were paid away as summarised in table 3 of Mr Holt’s third report. Again it is not necessary that I set out the detail. It is sufficient to note that the recipients included €3m transferred to an Estonia-registered company that is beneficially owned by Mr Karlsson and further sums appear to have been used either directly or indirectly to enable Mr Karlsson to purchase a property in Spain.[67]TAM provided what appears to be advice to Falcon to purchase the Median Bonds using its Balanced Fund in a document entitled “Final Security Analysis Summary” in which it described the bonds as being “Bearer Debenture Bonds” and the rationale for investing in them as being an opportunity:
“… to invest in and replicate the performance of a hedge fund called DB8 Opportunity Fund. DB8 is an investment vehicle that focuses on investments in the German residential and commercial real estate market, targeting primarily opportunities in Germany but is also selectively investing in other European countries. It offers an opportunity to gain exposure to this high-growth/untapped market that should result in above market average returns. Investments will include the whole chain of possible investments such as equity, secured and unsecured senior and junior loans as well as mezzanine loans and convertibles but also direct holdings. DB8 will also consider investment in Private Equity and similar investments.”
The document appears to be dated or to be valid for a date range between 13 and 23 June 2016. It took no account of and did not mention that Median and Viceroy had been in default since May 2016, that it was not known in the market whether and if so when any further payments would be made under the bonds. The only risk factors identified were “Macro Economics Risk, Structural Risk, Counterparty Risk”. Whilst it would appear that the relevant information was drawn to the attention of Falcon by an email from the Bank of Valetta dated only 5 January 2017, it is to be inferred that the information would have been available to TAM and either they obtained and ignored it or did not seek it. It is elementary that before buying a bond paying periodically against coupons, enquiries can and should be made concerning payment history. More generally the recommendation contains no reference to the underlying asset and implies in the section quoted above that the investment would be an indirect investment into the DB8 Opportunity Fund. It does not disclose that there would be any exposure to unsecured investments or quantify the expected returns (to which the enquiries concerning past performance referred to earlier would have been relevant). It did not consider the amount to be invested or the unit price. The document concluded with a “Portfolio Managers recommendation” to buy.[68]A similar document was prepared by TAM in relation to the Viceroy bonds. That document very largely followed the pattern adopted by TAM in its advice concerning the Median Bonds. The document appears to be drafted or to be valid for a date range between 13 and 23 June 2016. The description of the opportunity represented by the Viceroy Bonds was described as being:
“… the opportunity to invest and replicate the performance of a hedge fund called DB7 Prime Fund. DB7 Prime Fund applies a rather unique investment strategy combining highly liquid financial instruments (Futures & Options) and currencies (Majors) with special situations in listed equity. While the liquid part of the portfolio is based on a unique systematic proprietary approach that has been developed over years using pattern recognition methodology, the equity part of the portfolio is based on the recognition and identification of special situation opportunities among mainly listed European small- and mid-cap companies.”
The investment was said to be suitable for investment in Falcon’s Balanced Fund because:
“Given the low return on Money Market certificates, DB7 Prime Fund is offering a very attractive alternative as the Fund portfolio is designed to generate a stable absolute return over the long-haul by prioritizing capital preservation. This is a balanced strategy.”
This document too culminated in the “Portfolio Managers recommendation” to buy. The document suffers from all the criticisms I have set out above concerning the Median recommendation.[69]In fact, as Mr Holt demonstrates, none of this was correct. The assets in which Median and Viceroy were invested were a bond of €12.3m each in a Luxembourg registered company, Soparfi Palatine SA (“Soparfi”). As is apparent from the summary set out above there is no mention anywhere in the recommendations set out above that this was so. Each of Median and Viceroy paid €12.3m to Soparfi. Between June and September 2016 Soparfi Palatine SA paid a total of €24.6m to the Cayman Islands incorporated companies DB8 Opportunity Fund (€12.3m) and DB7 Prime Fund (€12.3m). Those funds were then disbursed to entities ultimately controlled by Mr Serwin and his associates. Those disbursements included:69.1 €7m to SVC apparently as payment for 1,400 shares in Werel by the DB8 Opportunity Fund;69.2 €5,151,548 to Reditum SA, which in turn transferred that sum to Larmag Real Estate 2 BV, a Dutch real estate company owned by Mr Magnusson, which in turn then paid € 2.5m to the 12th defendant in return for 500 shares in Werel. Of the remainder, €1.373m was disbursed to other Larmag group companies and €80,000 was paid to Mr Magnusson in a series of 25 transfers between July and December 2016, €370,000 to Kelasovi SL, a Spanish (Mallorca) registered company in which Mr Magnusson is or was then the only director and four sums totalling €889,112 that were retained by Reditum SA;69.3 €5m to AI Undertaking III Inc in return for 1,000 Werel shares acquired by DB7 Prime Fund, which appears to then have been paid to Falcon to fund the apparent redemption of units acquired in the Boardwalk Real Estate ETI referred to above; and69.4 €3m to the 12th defendant in return for 600 Werel shares acquired as to 300 by the DB7 Prime Fund and 300 by the DB8 Opportunity Fund. Of the €7m paid to SVC referred to above, €3.5m was paid to AI Undertaking XII Inc on 17 August 2016 and used for the apparent redemption of the Solid Venture P2P ETI units referred to earlier.

The Other Investments

[70]This part of the claim falls into a different category from those so far considered. It concerns 9 investments in conventional investment products which are not alleged to be illegitimate in nature, in marked distinction to the investments so far considered. They were sold between 15 October 2015 and 17 October 2016 at a combined loss of €22.16m. In relation to three of these investments – two issued by EFG International Finance Guernsey Limited (“EFG”) and one issued by Notenstein Privatbank AG (“Notenstein”) – SVC earned commission totalling €7.1m for introducing Falcon to the investment opportunity. The claimant alleges of these investments that they “… had no honest justification and it must be inferred that they were also tainted with fraudulent intent on the part of Mr Ingmanson and Mr Ökten. This is plainly the case in respect of the two EFG investments and the Notenstein investment, where indefensible commissions were paid to SVC (UK) (totalling US$8m, of which payments of US$850,000 and €53,000 were made to Mr Ökten). The Claimant lost €16.2m alone in respect of these three investments alone. In the absence of any Defendant having attempted to justify them, the remaining Other Investments are to be inferred also to be part of Mr Ingmanson’s fraudulent schemes, given the anomalies and uncommercial features explained in detail by Mr Holt. The Claimant lost €22.13m in total in respect of all of the Other Investments.” The primary loss claimed against the remaining defendants is the difference between the purchase cost and the realised sale price of €22.13m. However, as the claimant accepts in its written closing submissions, there is less factual information available in relation to the acquisition and disposal of these investments. Even so, the claimant submits that the “… large commissions being paid to SVC (UK) at the moment of entry into the investment, … are out of kilter with any genuine commission (although any commission would involve a breach of fiduciary duty). In one case the commission was 49% and the others were in the 30s, so it is apparent that these investments were thinly veiled straightforward wrongful misappropriations or extractions … These total €16.2 million.” The commission itself was, as indicated above, rather less than that.[71]With some hesitation, I accept the claimant’s submission that the case that Messrs Serwin and Ökten acted in breach of duty by procuring Falcon to invest in products where they were going to benefit from a secret commission and that the claimant should be entitled to all of the losses it sustained in consequence (alternatively, at a minimum, the losses represented by the amount of the hidden commission) is within the pleaded contentions set out above under Maltese law and within the overall quantum sought.[72]In my judgment this part of the claim succeeds only in relation to the three transactions to which I have so far referred. I am not satisfied that the evidence sufficiently established liability on the basis pleaded in relation to the remainder. In relation to the three investments that I consider the claimant is entitled in principle to recover damages for, I am satisfied that this is so because there was a manifest conflict of interest that resulted in commissions being recovered by (ultimately) Messrs Serwin and Ökten that should not have been payable at all but were in my judgment manifestly excessive. I now turn to the detail concerning these transactions.

EFG International Finance Guernsey Ltd (ISIN: CH0273395175)

[73]Since this is a legitimate investment I do not intend to take up time in describing it in any detail. Falcon invested a total of €9.6m in it on 23 April 2015. It traded on the SIX Swiss exchange until it matured on 10 April 2018. The product was in effect a bet on whether one of 4 states would fail to repay its sovereign debt without default or restructuring. No payment was recoverable by the investor unless there was a default by one of the sovereign states concerned. Falcon disposed of its investments in this security on 8 December 2015 for €1.9m. Given the nature of the product, it is probable that this loss reflects market sentiment because none of the relevant events happened or can be shown to be at any real risk of happening during that period or at all. Inevitably therefore the value of the secondary market of such a product was likely to reduce significantly. There is no evidence that selling the product at the time it was sold was not an option that was reasonably available to an investment manager or that the loss resulting was not simply the result of a disposal of a product that was unlikely to benefit the investor.[74]What remains to be considered is the payment of commission on the acquisition of this product. By an agreement between Leonteq Securities (Europe) GmbH (“Leonteq”) and SVC (“Leonteq Agreement”), it was agreed that SVC would act as broker for the purpose of introducing third parties to Leonteq willing to purchase products issued by it or its associates including Notenstein and that a fee would be payable to SVC in the event that the third party so introduced entered into a “relevant Contract” – see clause 1 of the Leonteq Agreement. The agreement was an agreement to agree because it was agreed between the parties that the fee payable “… shall be calculated as a percentage of Transaction value such percentage to be agreed on an Introduction by Introduction basis, as noted in writing by way of memorandum which shall specifically refer to this agreement and to the Introduction in question…”[75]On 6 May 2015 SVC invoiced Leonteq for “Sales Commission for Leonteq Warrants” in the sum of US$ 3,700,017.00. Given the proximity of the date of the invoice to the date when the product I am now considering was acquired by Falcon, I am satisfied that it is probable that the sum claimed was claimed by reference to that transaction. Leonteq paid that sum the same day – see the SVC bank statement referred to at footnote 232 to Mr Holt’s first report. The commission is 35% of the amount received by Leonteq from Falcon for the product I am now considering. On 9 May 2015, Mr Ökten invoiced SVC for “Consulting fee and commission on advised transaction” in the sum of US$675,000 and on 11 May 2015, US$675,000 was made from SVC’s Bank account to Mr Ökten, which payment was funded directly from the payment by Leonteq to SVC. It represents about 20% of the sum received by SVC.[76]I accept the claimant’s submission that this is unusually large for the reasons and by reference to the evidence referred to in the claimant’s supplemental Note at Section B3. There is no basis for thinking that any commission in excess of 1% would be reasonable or thought to be reasonable by an experienced investment manager such as Mr Ökten or for that matter someone with the knowledge and experience of Mr Serwin. It is also submitted that it is difficult to see how a product of this sort made any sense for a pension fund to invest in. I am not prepared to conclude that was so simply on the basis of the nature of the product viewed in isolation. Whilst it was undoubtedly a high risk product, it is one that in principle may be appropriate to acquire as part of a balanced portfolio given the high return. However, whether or not that was so would require expert investment expert evidence analysing the investment in the context of what ostensibly at least the relevant Falcon sub fund was meant to offer to investors. There is no such evidence available to me.

EFG International Finance Guernsey Ltd (ISIN: CH0266746608))

[77]Falcon invested a total of €3.5m in a security issued by EFG International Finance Guernsey Limited on 2 February 2015 and disposed of it on 18 December 2015 for a total of €145,000, representing a 96% loss on investment. The product was a derivative product which depended on the value of four foreign currencies against the US Dollar over the period of life of the product. The more those currencies devalued against the Dollar the less likely it was that the investor would profit from the investment. All the relevant currencies weakened against the Dollar over the period of Falcon’s ownership and continued to weaken after the product was sold. Mr Holt considers that this deterioration, whilst justifying a drop in price, may not have justified a drop of 95%. In my judgement there is no sufficient evidence to justify such a conclusion. If this product was a market traded product then market information ought to be available to enable this to be evaluated properly. However all Mr Holt says is that “… further information … is required to conclude on whether a better sales price could have been achieved…”. That being so, I am not able to conclude that the product was sold at a lower price than it should have been nor am I able to conclude that the sale of the product at the time it was sold was irrational given the performance of the currencies concerned against the Dollar at the time of sale and the absence of any evidence that at that time a reversal of this trend was considered likely or even possible. I am not able to accept that this investment was not a proper investment for the relevant Falcon sub fund to have made at the date when it made it in the absence of expert investment evidence that supports such a conclusion. By definition the product like all currency hedge products was attended by significant risk. However that does not lead to the conclusion that the product was not in principle a proper one to invest in as part of an appropriate diversified portfolio depending on the risk profile for the portfolio concerned. There is no evidence that enables to me to conclude that this was an inappropriate investment bearing in mind those considerations.[78]In relation to commission, on 10 February 2015, SVC invoiced Leonteq for “Sales Commission for Leonteq Warrants” in the sum of US$1,950,000. The documentation raised by Leonteq in relation to this invoice confirms that it is in respect of the acquisition of the product I am now considering. That commission represents 49% of the amount received by Leonteq from Falcon for the product and in my judgment is manifestly excessive for the reasons I have given when considering the earlier EFG transaction. There is no invoice that can be specifically tied down to a payment to Mr Ökten in respect of this transaction although inferentially he was paid in relation to it by reference to one or more of the payments made to him in the period between 9 – 15 March 2015. I so conclude in the absence of any evidence from either Mr Serwin or Mr Ökten that answers the claimant’s inferential case on this point.

Notenstein Finance (Guernsey) Limited (ISIN: CH0274762357)

[79]Falcon invested a total of €5.3m in a security issued by Notenstein Finance (Guernsey) Limited on 7 October 2015. Falcon disposed of its investment in this security on 1 June 2016 for a total of €161,000, representing a 97% loss on the investment. This product was materially similar to the EFG CH0273395175 product considered already and like that product is only of benefit to the investor if the sovereign debt concerned perform negatively by reference to the defined events. As Mr Holt says in his first report, there is no evidence that “… the requisite “credit events” occurred in the relevant countries during this period (or subsequently)…” That provides a commercially credible reason for a deterioration in the value of the product down to the date when Falcon sold it. In those circumstances I cannot safely conclude that it was commercially irrational to have sold the product when it was sold. I cannot safely conclude either that this product was not one that Falcon should have been investing in for the reasons identified when considering the EFG CH0273395175 product. Although the claimant suggests that Mr Ökten’s reasons for recommending its purchase (being that the product was in line with the investment objectives of all three sub funds because “it offers protection against bad macroeconomic scenarios”) were “thin” that does not provide a basis for concluding that it was a fraudulent investment given the factors that Mr Holt identified summarised above.[80]In relation to commission, on 13 October 2015, SVC invoiced Leonteq for “Sales Commission for Leonteq Warrants ( 110) NFG INV CLN EN 170110” in the sum of US$2,325,000.00. That sum was credited to SVC’s bank account the following day. It represents 39% of the sum paid by Falcon to Leonteq and is manifestly excessive for the reasons I have given already.[81]As I have said above, I consider the commissions received by SVC were manifestly excessive. I accept the claimant’s submission that they were subtracted from and paid out of the funds invested with the result that the cost of the investments was higher by at least the amount of the commissions. I accept that ultimately Mr Serwin received significant sums as a result of the arrangements set out above. I accept also that Mr Ökten was aware of these arrangements and at least in part benefitted from them but was willing to approve the purchases notwithstanding that knowledge. It is to be inferred that he had that knowledge from at least the invoice he rendered in relation to the first of these transactions the size of which is consistent with him knowing of the arrangements that had been made. As I said earlier, anyone with the knowledge and experience of Mr Ökten would know that commissions of this size were unjustified and unjustifiable commercially but I infer that he was prepared to ignore that fact because of the payments that he received ultimately from Mr Serwin. It is beyond sensible argument that to pay and receive these commissions given the position of Mr Serwin and Mr Ökten was to intentionally do an act foreseeing that damage in the amount of the commission would be inflicted on Falcon as a result. In the result, whilst I accept that to solicit and then receive the commissions I have referred to was and is indefensible, I am not able to accept that it necessarily follows that the investments to which they related were also indefensible for the reasons I have explained above.

Liability and Quantum

[82]As I have said, the applicable law is Maltese law. By Art. 1031 in Chapter 16 of the Laws of Malta (the “Civil Code”) “Every person, however, shall be liable for the damage which occurs through his fault.” Fault in this context means a person in acting in the manner alleged “… does not use the prudence, diligence, and attention of a bonus paterfamilias.” To succeed in a claim for breach of Art 1031, a claimant must prove “ …(a) the ‘faulty’ conduct of the defendant, comprising unjust/illicit acts and/or omissions;(b) that this was committed with culpa or dolus;(c) this faulty conduct must have been the 'direct and immediate cause' of damage inflicted upon the claimant.” – see para. 5.5 of the report of Professor Zammit, the claimant’s expert witness on Maltese law. There is also a requirement to establish that the person concerned is legally responsible for his or her acts or omissions but that does not arise as an issue because all the defendants are of age and are mentally competent. The concept of “dolus” is a requirement that the defendant has intentionally carried out the act or omission in circumstances where it was foreseeable to a reasonable person in the position of the defendant that damage would be caused by the conduct complained of – see Zammit 1, para. 5.9. In relation to causation, Maltese law recognises that there may be more than one person liable in respect of the same loss with the result that the loss claimed may be caused by more than one direct and immediate cause with the ultimate test in relation to each defendant being whether the loss concerned would have been incurred but for the defendant’s actionable act or omission. The claimant’s claim against each defendant is advanced by reference to these provisions.[83]Aside from the tortious claims so far considered, the claimant claims against Mr Serwin for breach of fiduciary duty. Fiduciary obligations are expressly regulated by Articles 1124A to 1124J of the Civil Code. The claimant’s case is that Falcon owed fiduciary duties to the claimant pursuant to Art. 1124A(1), which provides:
“Fiduciary obligations arise in virtue of law, contract, quasi- contract, unilateral declarations including wills, trusts, assumption of office or behaviour whenever a person (the "fiduciary") - (a) owes a duty to protect the interests of another person and it shall be presumed that such an obligation where a fiduciary acts in or occupies a position of trust is in favour of another person; or (b) has registered in his name, holds, exercises control or powers of disposition over property for the benefit of other persons, including when he is vested with ownership of such property for such purpose; ... ”
[84]I accept that is so because by subscribing for shares in Falcon it entrusted its investment to Falcon and Falcon designated TAM as its management company. TAM was required to act and manage the sub-funds in the best interest of investors – see Art. 13(1)(b) of the Undertakings for Collective Investment in Transferable Securities Directive 2009/65/EU (“Directive”). TAM was required to act “… honestly and fairly in conducting its business activities in the best interests of the UCITS it manages and the integrity of the market…” – see Directive, Art 14(1)(a); “… with due skill, care and diligence, in the best interests of the UCITS it manages and the integrity of the market…” – see Directive, Art 14(1)(b); and “… tries to avoid conflicts of interests and, when they cannot be avoided, ensures that the UCITS it manages are fairly treated” – see Directive, Art 14(1)(d). In these circumstances and applying Art. 1124A(1), I accept the claimant’s submission that both Falcon and TAM owed fiduciary duties to the claimant.[85]Article 1124A(2) of the Civil Code provides that “(a) person who is delegated any function by a fiduciary and is aware, or should, from the circumstances, be aware, of the fiduciary obligations shall also be treated to be subject to fiduciary obligations.” This not merely renders TAM a fiduciary by reason of its appointment by Falcon but it also results in Mr Serwin owing fiduciary duties to the claimant to the extent that Falcon delegated its functions to him. On the claimant’s case, he is also liable for breach of fiduciary duty by operation of Art. 1124(A)(3) of the Civil Code, which provides that “(f)iduciary obligations arise from behaviour when a person(a) without being entitled, appropriates or makes use of property or information belonging to another, whether for his benefit or otherwise; or …(b) being a third party, acts, being aware, or where he reasonably ought to be aware from the circumstances, of the breach of fiduciary obligations by a fiduciary, and receives or otherwise acquires property or makes other gains from or through the acts of the fiduciary ....” The claimant relies on this provision as against all the other defendants, necessarily submitting that the knowledge of the individuals is to be attributed to the companies they controlled.[86]The content of the fiduciary duty is set out in Art 1124A(4) of the Civil Code, which provides:
“Without prejudice to the duty of a fiduciary to carry out his obligations with utmost good faith and to act honestly in all cases, a fiduciary is bound, subject to express provision of law or express terms of any instrument in writing excluding or modifying such duty, as the case may be – (a) to exercise the diligence of a bonus pater familias in the performance of his fiduciary obligations; (b) to avoid any conflict of interest or any conflict of trust or fiduciary obligations; (c) not to receive undisclosed or unauthorised profit from his position or functions nor permit any other person to do so, nor enter into any transaction related to the property, directly or indirectly, unless authorised to do so by the instrument creating the fiduciary obligation or permitted by a person or authority empowered to approve such dealings under the instrument or applicable law or as otherwise authorised by the Court: ...”
Thus and unsurprisingly, the irreducible minimum content of a fiduciary duty is to act with utmost good faith and honestly. The remedies available against a person who acts in breach of fiduciary duty are not only a personal remedy of damages but also the proprietary remedy set out in Art 1124A(5), which provides that “In addition to any other remedy available under law, a person subject to a fiduciary obligation who acts in breach of such obligation shall be bound to return any property together with all other benefits derived by him, whether directly or indirectly, to the person to whom the duty is owed.”[87]In light of the findings made earlier in this judgment, I conclude that Falcon was established by Mr Serwin as a vehicle for what was from the outset a fraudulent investment scheme. He devised the Falcon structure and then took steps to disguise his connection with it from the SPA amongst others. He caused Falcon to be held out as being a legitimate UCITS Fund when to a highly material degree it was not. He procured the investment of pension assets in entities in which he was either directly or indirectly interested, in combination with Mr Bishop and Mr Gergeo, using corporate vehicles that they controlled either jointly or individually including but not limited to SVC (which Mr Serwin controlled jointly with Mr Gergeo until 7 October 2015 when it became solely controlled by Mr Gergeo until 6 October 2018), the 12th and 13th defendants (Mr Gergeo) and Energy Everything Investments plc (Mr Bishop). He was the individual who formed Werel and then financed it initially. It was the share dealing in that entity that facilitated the transfer of wealth from Falcon to Mr Serwin amongst others by the ostensible dealing in its shares described above at values that could not and did not have any objective justification.[88]Turning to Mr Ӧkten, although he is not mentioned as often in the factual findings set out above, he was central to the fraudulent scheme because it enabled Mr Serwin to distance himself from the day to day management of Falcon and its sub funds and provided what is sometimes described as the “window dressing” – that is the document trail that ostensibly suggests that what is being undertaken is a legitimate business activity. The investments set out above could not have been undertaken by Falcon or (in the case of the three public exchange investments referred to above) undertaken in the way they were without TAM acting by Mr Ӧkten providing the ostensible assessments and advice to purchase. That he was put in place by Mr Serwin essentially for this purpose is supported inferentially by the circumstances of his appointment set out above. In particular it is supported by the line in the email from Mr Serwin to Mr Bishop of 22 January 2015, in which he described an attempt not to appoint Mr Ӧkten as something that “… could jeopardise the hole business” – that is the business of Falcon and how it was intended by Mr Serwin and his immediate associates Mr Bishop and Mr Gergeo to be operated. As I have found he received commissions in relation to at least the last three transactions I have made findings about. There could be no justification whatsoever in Mr Ӧkten receiving a commission in the manner described in relation to investments he was meant to be independently vetting in the sole interests of the Falcon sub-funds and the claimant as its investment shareholder. He was an experienced investment manager who could not conceivably have thought that it was appropriate to accept commissions in such circumstances, much less ones based on commissions paid to SVC that as he must have known were grossly in excess of anything that could be justified commercially. Inferentially, the sums paid to Mr Ӧkten were paid because he knew what Mr Serwin was doing, what he was receiving and that it could not be achieved without his willing assistance. Those sums were accepted by Mr Ӧkten on that basis. Without his involvement (or someone ready willing and able to provide the cover that was needed if the fraud was to be carried on as it was) the fraudulent scheme would have collapsed or perhaps never commenced just as Mr Serwin foresaw in the email of 22 January 2015. It was once he was in place that the fraudulent activity could start in earnest.[89]Aside from the “other investments” the total sum claimed by the claimant is €60.7m. In my judgment Mr Serwin is liable to the claimant for the whole of that sum as a tortfeasor as a matter of Maltese law applying the principles set out above. In common with others but also individually as architect of the Falcon scheme his were the illicit acts and omissions that led to the losses suffered by the claimant. He committed those acts and omissions knowing full well they would cause loss to the claimant that in the result eventuated and it was foreseeable to any reasonable person in the position of Mr Serwin that such losses would be caused by his conduct as I have found it to be. In relation to the “other investments” all the conditions for tortious liability have been made good as well to the extent that the commissions he received were commissions he should not have been receiving. The commissions were secret commissions which are to be treated as having inflated the cost of the investments by at least the amount of the commissions and he is liable tortiously for the whole of the sum so received.[90]In relation to Mr Ӧkten the position is potentially more complex. Firstly, in relation the secret commissions paid to SVC, I consider that he is liable tortiously jointly and severally with Mr Serwin for the whole of the sum lost. Those transactions were only able to take place because he approved them in his role as investments manager of the Falcon sub-funds. Secondly, I do not consider that Mr Ӧkten should be found liable in respect of the losses attributable to the Reditum Bond because it has not been proved that either TAM or he was involved in that transaction. Finally entirely properly the claimant has drawn my attention to the fact that Mr Ӧkten ceased to be TAM’s portfolio manager on 28 May 2016 whereas the Median and Viceroy bonds were issued on 31 May 2016 and acquired by Falcon thereafter. There were TAM documents prepared relevant to those acquisitions but they were not signed by Mr Ӧkten. In my judgment it would not be sound to infer responsibility by Mr Ӧkten for these transactions in those circumstances. They should not form part of his liability for damages.[91]In relation to the corporate defendants, the 9th defendant is alleged to have received €5.8m from the WSV Pro Mittelstand ETI. This receipt is proved by Mr Holt’s evidence at paragraph 8.2 and 8.14 – 8.16 of his first report and the contemporaneous documents there referred to. This company was controlled by Mr Bishop, whose knowledge of the fraud is to be attributed to the 9th defendant. For that reason the conditions for tortious liability have been satisfied in relation to the receipt by the 9th defendant of this sum and the claimant is entitled to judgment as sought in the claim against it.[92]The claimant seeks judgment against the 10th defendant in the sum of €5m, received from NPI in respect of the Nordic Power ETI. This receipt has been provided by Mr Holt’s analysis at paragraph 10.16 and 10.24 of his first report and the contemporaneous documents he there refers to. This company was controlled by Mr Bishop, whose knowledge of the fraud is to be attributed to the 10th defendant. For that reason the conditions for tortious liability have been satisfied in relation to the receipt by the 10th defendant of this sum and the claimant is entitled to judgment as sought in the claim against it.[93]The claimant seeks judgment against the 12th defendant in the sum of €19.54m, which was the amount which Gergeo Holding received as a result of the sale of Werel shares. As pleaded this allegation is that “… Gergeo Holding received (it is believed) at least €19.54m as a result of the sale of Werel shares to AIU III, EEI, Larmag EG and DB8 Opportunity Fund (“DB8”).” The evidence available proves that:93.1 On 18 September 2015, Gergeo Holding AB transferred 1,000 shares to AI Undertaking III Inc in the sum of €4,940,000;93.2 On 11 March 2016 Gergeo Holding AB transferred 1,000 of its 4,500 shares in Werel AB to EEI Plc. The shares were paid for by SVC on 8 March 2016 in the sum of €4,500,000;93.3 On 18 July 2016, Gergeo Holding AB transferred 500 shares to Larmag Energy Group in the sum of €2,500.000;93.4 On 18 July 2016, Gergeo Holding AB transferred 1,400 shares to DB8 Opportunity Fund in the sum of €7,000,000;93.5 On 8th September 2016, Gergeo Holding AB transferred 300 shares to DB8 Opportunity Fund in the sum of €1,500,000.[94]By my calculation this adds up to more than the sum claimed. However, the sum claimed has been confined to the sum pleaded and I am prepared to proceed on that basis since it benefits the 12th defendant. This entity was controlled by Mr Gergeo at all material times because between 11 May 2015 and 22 March 2017 he was its sole director and its sole shareholder until 14 September 2017. Thus his knowledge of the fraud is to be attributed to the 12th defendant. That being so, he knew that the value of the shares was much less than was being paid for them (indeed may have been close to valueless for the reasons explained earlier in this judgment) and that the sums that the 12th defendant were receiving as set out above were derived from Falcon and thus from the claimant. In those circumstances, the conditions for tortious liability have been satisfied in relation to the receipt by the 12th defendant of this sum and the claimant is entitled to judgment as sought in the claim against it.[95]Finally as against the 13th defendant judgment is sought in the sum of €1.5m. I am not satisfied that the claimant is entitled to judgment in this sum. Whilst there is ample evidence to show that the shares in Werel were repeatedly ostensibly bought and sold in order to facilitate the fraudulent scheme described above, there is no evidence that the sums paid out by Werel were the proceeds of the fraudulent scheme.[96]I have so far addressed all the claims as a matter of Maltese tort law. I am satisfied that the same sums are recoverable for breach of fiduciary duty applying the principles summarised above against each of the defendants to the extent set out above.[97]So far as interest is concerned, I am satisfied that Maltese law should determine the interest issue that arises. This is so because the Maltese law in this area is intended to secure full compensation for victims. That being so, I apply the principles identified by Professor Zammit in para. 8.7 and following of his first report. The applicable default rate is 8% apparently irrespective of the currency concerned – see Art. 1047(1) of the Civil Code. Generally, interest is calculated to run from the date of judgment – see Zammit 1, para. 8.7. However, as I read that and the following paragraphs the Maltese courts have discretion to vary the date when interest starts to run applying Art. 1047(3). To my mind this is one of those cases where that discretion should be exercised in favour of the claimant because the claimant has not merely been deprived of its money by fraud but it has been deprived of any growth in the sums it thought has been invested for future growth. In my provisional judgment the correct balance is to be struck (particularly having regard to the quite high rate that is to be imposed as a matter of Maltese law) by directing that interest should run from the date the Claim Form was issued. I leave it to the claimant to calculate the relevant interest in relation to each defendant applying these principles. If the claimant considers that interest in excess of that sum should be recovered then further submissions on that issue can be made at the hand down of this judgment.

Post Judgment WFO

[98]I continue the WFO against those defendants with whom this judgment is concerned.

Proprietary Remedy Declaration

[99]I consider that the claimant has made out its claim for breach of fiduciary duty for the reasons set out at length above and that it is entitled to a proprietary remedy applying Art. 1124A(5) of the Civil Code. Accordingly, I am in principle prepared to grant the necessary declarations that carry that into effect.

Consequential Issues

[100]I had hoped that a further hearing would not be necessary, but it may be more cost effective if the issues that remain are determined following a hand down of the judgment. I direct therefore that the claimant submit a copy of this judgment with suggested typo and other obvious errors together with a draft order and a written submission dealing with the outstanding issues concerning interest, costs and the terms of the declaration by 1600 5 working days after receipt of this draft. Once I have had sight of those documents I will decide whether to direct a short hearing or whether what remains to be addressed can be dealt with on paper.

Cited in 2 later judgments