The Cyprus Development Bank (CDB) has been rocked by multiple scandals involving deals made by its previous General Manager and members of the Board, who are serving now.
Members of the House Watchdog Committee met behind closed doors to hear allegations of mismanagement, which led to CYP 20 mln in losses in 2003 as a result of sour loans, while the financial news site Stockwatch revealed that the CDB is involved in more scandals pertaining to investments in the shares of AremisSoft and a dispute with the Bank of Piraeus.
Committee Chairman Christos Pourgourides said the bank had racked up huge losses as a result of loans and investments made “using rushed and inadequate procedures”. AKEL deputies Andros Kyprianou and Stavros Evagorou who tabled the discussion said the evidence presented confirmed their suspicions of wide-spread mismanagement.
The current bank chairman, Andreas Mouskos acknowledged that the losses were mainly as a result of precarious debtors and bad management, adding that the CDB had appointed external auditors (E&Y) to report on the period in question.
Discussing the retirement package of CYP 400.000 offered to the departing Managing Director of CDB, George Ioannides and the benefits paid to a number of officials, Pourgourides said: “At first sight, they are considered excessive.”
Mouskos told reporters that the bank’s leadership had no intention of covering up anyone or any case, referring to the independent inquiry under way.
GLOBALSOFT
The CDB is also involved in a scandal concerning its overseas investments, according to Stockwatch. The financial web site said the CDB agreed in 1997 to invest CYP 2 mln in the Dutch based LK Global Information Systems B.V., which belonged to Lycourgos Kyprianou and who was looking for investors to help in the listing of AremisSoft (AREM), the mother company of LK Global on the Nasdaq.
According to Stockwatch, Lycourgos Kyprianou agreed to provide the CDB personal guarantees for the initial capital invested, plus 14% annual interest for the next two years after the investment.
The Central Bank of Cyprus approved the investment, on the understanding that all the proceeds from a future sale of the stake would be brought back to the country and converted into Cyprus pounds.
After the passage of two years, and while the shares of AREM were trading at a substantial premium compared to their listing price, the CDB agreed to a new deal, according to which it would sell its stake in AREM only through a British Virgin Islands registered company, called Southwood.
Stockwatch claims that a Cypriot national with the initials A.G. was the sole signatory on behalf of the company, for which there are no other available information.
The agreement, signed according to Stockwatch by the former GM, provided that while the 14% plus interest guarantee would remain in force, but any proceeds from the sale of the AREM shares over and above the initial investment made by CDB would be split with Southwood.
In early 2000, a new buyer for the AREM shares was found in the name of the Greek Infoquest, which paid USD 29 cash per share for every share held by CDB in AREM.
According to Stockwatch, the total proceeds from the sale of the CDB shares amounted to USD 14 mln, of which the CDB collected USD 9 mln (being original investment, plus 14% return) while the remaining USD 5 mln was collected by Southwood.
The CDB then transferred the USD 9 mln back to Cyprus and made a declaration to the Central Bank that this was the amount raised as a result of the sale of its shares in AREM.
BANK OF PIRAEUS
The CDB meanwhile is involved in a lawsuit against the Bank of Piraeus over a dispute involving an investment made in Global Capital on behalf of the Greek bank by the CDB, which the Greek side refuses to accept, according to bank sources, cited by Stockwatch.
The lawsuit refers to an investment made by the CDB in 2001, acquiring the 30% of the share capital or 388.349 shares of Global Capital for CYP 1.7 mln.
The CDB claims that it bought the shares on behalf of the Greeks, based on a verbal agreement. The Greek side refuses to acknowledge the deal, but CDB officials believe they have a good case, which rests solely on testimony that Ioannides has agreed to give on behalf of the CDB.
This is also the reason why according to Politis and despite massive allegations against Ioannides, the CDB is not pressing charges, lest it loses him as its main witness involving the case.
