German financial watchdog BaFin has filed a criminal complaint against the management of Greensill Bank for alleged manipulation of the balance sheet, according to people with direct knowledge of the matter.
The complaint was lodged on Wednesday with criminal prosecutors in Bremen, where the bank’s headquarters are located. It concerns the interim findings of an ongoing forensic investigation into the lender’s balance sheet that the audit firm KPMG began at BaFin’s request at the end of last year.
Manipulation of the balance sheet can be punished by up to three years in prison under German law.
The move by German officials risks complicating efforts to save parts of the Greensill Empire, once high-profile financial firms backed by SoftBank and advised by former UK Prime Minister David Cameron.
The bank’s parent company, Greensill Capital, plans to UK insolvency case but transfer the viable parts of the business to Apollo Global Management.
KPMG’s audit raised concerns about the bank’s level of exposure to companies linked to metals tycoon Sanjeev Gupta, who is not the subject of the complaint and has not been charged with wrongdoing .
Gupta’s Greensill Capital and GFG Alliance declined to comment. A spokesperson for Bremen prosecutors confirmed that the complaint had been received. KPMG declined to comment.
BaFin is also concerned about the auditor of lender Ebner Stolz, a mid-size partnership based in Stuttgart. The watchdog will report Ebner Stolz to the German watchdog Apas, a person with first-hand knowledge of the matter told the FT.
Ebner Stolz said that due to confidentiality obligations, he does not comment on ongoing audit mandates. “We will immediately contact the authorities to offer our cooperation to clarify the facts within our legal possibilities,” said a spokesperson.
KPMG’s investigation focused on the “receivables” financing facilities the bank provided to Gupta companies, according to people familiar with the investigation, which are designed to be repaid by clients of a group.
This allowed the bank to classify the risk as being spread across a number of different companies, rather than a single large exposure to Gupta’s business, which could have broken the rules.
During its investigation, KPMG struggled to verify the existence of some of these invoices, according to several people familiar with the investigation. He also determined that the “prepaid debt” facilities, under which the debt would be repaid by hypothetical future invoices, could be interpreted as an unsecured loan to the Gupta companies.
Gupta has a close relationship with Lex Greensill, the 44-year-old Australian banker who founded the finance company and previously held a stake in Greensill Capital.
Greensill Bank was founded in 1927 in Bremen and traded as Nordfinanz Bank AG until 2014 when it was acquired by Greensill Capital. Subsequently, the balance sheet of the small regional lender grew rapidly.
Greensill Bank’s loan portfolio is around 3.5 billion euros, according to people familiar with its balance sheet, and more than 2 billion euros are in debt financing related to Gupta’s activities. Another amount includes loans guaranteed by the UK government to entities related to the businessman of Indian origin, which the Financial Times revealed last year had been provided by Greensill.
German officials fear, however, that the British government could cancel these guarantees.
German regulators’ concerns over Greensill Bank were first triggered by an FT investigation in Gupta’s finances released a year ago, according to people familiar with the matter.
The FT’s investigation reported the amount of funding the British industrialist’s companies had drawn from the Bremen-based bank, while developer that Gupta’s own UK lender – Wyelands Bank – had funded its larger business empire through a network of shell companies.
Wyelands – which is named after a Welsh country estate that Gupta owns with his wife – said on Wednesday it would fully reimburse its own retail depositors after a £ 75million injection from Gupta.