UBS AG’s next big battle looks likely to be fought in Orange County.
A $500 million racketeering lawsuit filed in 2008 by Newport Beach-based real estate developer Igor Olenicoff against UBS and dozens of other defendants was given the go-ahead earlier this month by U.S. District Judge Andrew Guilford.
In a 56-page decision issued on March 16, Guilford refused to dismiss the bulk of Olenicoff’s claims that UBS and his former personal banker, Bradley Birkenfeld, among others, conspired in a “carefully crafted investment scheme” that defrauded him and others out of millions of dollars and led to federal tax charges against him in 2007.
Guilford said the case—which has gotten plenty of international attention—could proceed in its current venue, federal court in Santa Ana.
UBS and Birkenfeld, among other defendants, wanted the case transferred to a place that likely would have been more accommodating to their interests, such as Florida or even Switzerland’s own court system.
“By undertaking to manage (Olenicoff’s) investment assets and communicating with (him) through the OC office, many of the defendants in this case purposefully directed their activities toward this district,” Guilford wrote in his decision.
Guilford did dismiss one key claim Olenicoff made against UBS—that it committed federal securities fraud. Charges against a handful of secondary defendants also were dismissed.
The jurisdictional ruling in particular is “a huge win,” said William King of Irvine-based Horizon Law Group LLP. He’s representing Olenicoff, the billionaire president and owner of Newport Beach-based Olen Properties Corp., one of OC’s largest property owners.
Trying the case successfully in Switzerland would have been next to impossible, he said.
“UBS and Switzerland, especially the media there, have been calling this case frivolous,” King said. “But (Guilford) said, ‘No, this is a viable case, and you have to go ahead.’”
It’s the latest American headache for UBS, Switzerland’s largest bank, which has faced harsh scrutiny in the past two years because of its dealings with wealthy U.S. clients.
The government contends that close to $20 billion in U.S. taxpayer wealth has been hidden overseas in Swiss bank accounts.
Last year UBS agreed to turn over details on 4,450 accounts to the Internal Revenue Service. It also agreed to pay $780 million to settle federal investigations into its activities.
A conclusion to Olenicoff’s case and the potential awarding of any damages still are likely more than a year away.
Next Step
The next step in the lawsuit is the discovery phase, according to King. He plans to get pre-trial depositions from Birkenfeld, a former UBS banker who once counted Olenicoff as his largest client, and others.
Birkenfeld was convicted last year of conspiring to defraud the U.S. government by creating fake corporations and trusts for clients. He began a 40-month prison sentence this January.
Once the discovery phase moves ahead, there’s a chance Olenicoff might try to get the securities fraud allegations reinstated against UBS, according to King.
King said he thinks some parties in the case might opt to settle with Olenicoff in the upcoming months, although UBS isn’t likely to do so.
“They’ll continue to defend themselves,” he said. “It will be a huge battle.”
UBS plans to continue to “defend itself vigorously,” spokeswoman Karina Byrne said.
There are no plans in the works to settle the case, she said.
Olenicoff, who first filed his headline-making case nearly 18 months ago, said the ruling “was well worth the wait.”
“Although it was not entirely in my favor, I am quite pleased with the result because it achieved a 95% success level for us,” Olenicoff said.
In addition to punishing UBS and others for tarnishing his “good name and that of (his) business,” Olenicoff said he initially filed his lawsuit largely on behalf of other investors who were misled by UBS and the other defendants.
Guilford’s decision noted that one key reason for not dismissing the case is because if Oleni-coff “were to prove his (racketeering) allegations, this lawsuit would serve to protect other in-vestors and is therefore in the interest of society.”
The current case isn’t a class-action lawsuit, but King said he has other clients who are “close” to going forward with similar lawsuits.
Olenicoff’s well-publicized 2007 guilty plea to filing a false tax return and eventual $52 million settlement with the government was one key reason the defendants had hoped to get the case dropped.
But Guilford brushed off the “unclean hands” defense. Olenicoff’s claims “for, among other things, securities fraud, conversion and violations of (the Racketeer Influenced and Corrupt Organizations Act) have nothing to do with the tax-related issues,” he said.
“Basically, (Guilford) said ‘You’re going to have to defend this case on its merits,’” King said. “It’s easy to dismiss someone’s claims by calling them a tax cheat. But it’s not accurate.”
