* Cyprus accused of confiscating funds following 2013 bailout *
The government could be facing a lawsuit with a claim for “at least” 50 mln euros from Greek investors who lost their deposits and holdings as a result of the country’s financial crisis and last year’s bailout.
The group of nearly 100 investors, which includes individuals and institutions, is comprised of depositors and bondholders of Laiki Bank and the Bank of Cyprus. The claimants, who are all Greek citizens or are based in Greece, seek recovery of the value of their deposits or bonds lost as a result of the bailout — estimated to be well over 50 mln euros. A notice of dispute as a class claim was filed on Monday on behalf of the investors by the financial litigation law firm Grant & Eisenhofer, as well as Kessler Topaz Meltzer & Check and Kyros Law, and also public international law firm Volterra Fietta.
The notice of dispute has been submitted under a 1992 bilateral investment treaty between Greece and Cyprus, which provides that the parties must first attempt to settle their dispute amicably for at least six months, the claimants’ lawyers said in a statement. If the parties do not reach a settlement in that time frame, the claim would then be submitted for resolution by way of binding arbitration at the International Centre for Settlement of Investment Disputes, or ICSID.
The anticipated date of such an action would be mid-January 2015.
“This is the first time that the bilateral treaty will be tested as a class action for investors who have suffered losses stemming from the European financial crisis, which gripped Greece and Cyprus particularly hard,” said Grant & Eisenhofer co-managing director Jay Eisenhofer.
“We believe strongly in the merits of the aggrieved investors’ claims as a class, and will be working closely with Kyros Law and Volterra Fietta to recover their lost funds.”
Grant & Eisenhofer is working with Kyros Law on the Cyprus investor dispute, as part of G&E's ongoing collaboration with the Boston-based firm. Last year Kyros Law launched an office in Athens for the joint venture, and the two firms work together on investor-driven litigation coming in and out of Greece, including matters stemming from the country’s recent economic meltdown.
The investors’ claims arose out of Cyprus’ response to its financial crisis, following Greece’s default on its own bonds in 2012. Laiki Bank and the Bank of Cyprus had purchased huge amounts of Greek bonds and lost billions of euros once Greece defaulted; as a result of these losses, it became clear that at least Laiki Bank might be insolvent.
Bondholders were also negatively affected. In July 2013, the Bank of Cyprus announced that holders of convertible bonds and various types of securities would be converted to Class D shares of the bank at a conversion rate of 1 euro nominal amount for each 1 euro in principal amount of such subordinated debt claims. Furthermore, the nominal value of Class D shares would be reduced to 1/100th of their original value.
“The unfair terms of the revised bailout agreed between Cyprus and the Troika targeted and discriminated against Greek investors who placed their money and trust in Bank of Cyprus and Laiki Bank,” Eisenhofer stated. “Notably, foreign investors made up the bulk of depositors in these two banks. Considering how Cyprus long marketed itself as a tax haven, and had attracted many international investors, the government’s abrupt U-turn and inequitable conduct toward investor funds takes on an even more egregious pall.”
Eisenhofer further pointed out that while Greek depositors were subject to extreme bailout measures, many Cypriot public institutions were made exempt. The decree specifically excluded, among others, credit institutions, insurance companies, general government entities and domestic financial auxiliaries.
John Kyriakopoulos, Athens-based managing partner of Kyros Law, stated: “The Cyprus government wrongfully deprived many Greek investors of their property and treated them unfairly as a result of the 2012-2013 crisis. Not only that, none of the bailout funds will be used to assist the recapitalisation of the Bank of Cyprus. Instead, shareholders — many of them former Laiki Bank depositors — as well as bondholders and depositors are bearing the entire burden of recapitalisation.”
Eisenhofer added, “In the event our clients cannot come to an agreement with the government of Cyprus, our clients are prepared to commence binding arbitration before ICSID.” Most commonly in the ICSID forum, one arbitrator would be appointed by the Greek investors, one by Cyprus, and the third would be appointed by agreement (or by ICSID itself).
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