Jean Francois de Clermont-Tonnerre and the Hottinger case

There are certain life events that make you. Jean-François de Clermont-Tonnerre will always remember Thursday, January 3rd, 2013. That was the day Clermont-Tonnerre first discovered signs of a massive financial fraud perpetrated by his business partner Fabien Gaglio at Hottinger & Partners (HPSA).

Fabien Gaglio, a forty-year-old French wealth manager who had worked at Morgan Stanley and Rothschild bank, was operating a large-scale fraud, even producing counterfeit financial statements for his clients. In July 2016, the 18th Criminal Court of Luxembourg sentenced Fabien Gaglio to five years in prison for stealing €7.7 million.

How it All Unfolded Over 7 Days

January 3rd: A Californian client called Hottinger & Partners to ask for a simple clarification to an account statement. However, when an HPSA employee compared the customer's statement to the bank's information there was a gap of around two million euros in the account. When the anomaly was brought to Clermont-Tonnerre, he called Gaglio to ask for an explanation. Gaglio said he would call him back but never did.

Clermont-Tonnerre was concerned by Gaglio’s behaviour and started researching other client statements. More anomalies were discovered by the HPSA team and then big problems were uncovered. After four days Fabien Gaglio still hadn’t contacted Clermont-Tonnerre with an explanation.

“Customers didn’t understand what was going on,” said Clermont-Tonnerre. “There were a number of client financial statements that didn’t match any of Hottinger's information.” It was then that Clermont-Tonnerre realized that Gaglio was at fault. After seven days of hell, Jean-François de Clermont-Tonnerre filed a complaint to the Swiss and Luxembourg authorities.

The amount of research required to unpick Gaglio’s fraud was huge and Jean Francois de Clermont-Tonnerre decided to employ Deloitte, the accountancy firm. Deloitte's forensic accountants looked at 10 client accounts managed by Gaglio and analysed 260 pages of banking documents, loan agreements and emails. The team also looked at a further 822 pages of supporting documents.

Deloitte’s conclusion was that the total losses at HPSA attributable to Gaglio's fraud were about $54 million. About $18 million of the $54 million loss could have been authorized by clients as legitimate transactions or were likely to be recovered from legitimate investments. Therefore, Deloitte's estimate of net client losses due to Gaglio's fraud was about $35 million.

It has been estimated that over Gaglio’s entire career, including jobs at prestigious banks, he could have stolen up to $100 million.

When Gaglio was interviewed by the French and Luxembourg authorities, he presented the fraud as a classic Ponzi scheme. He would falsify statements so clients thought their investments were growing but, in reality, Gaglio was using one client’s pot of money to pay off another client’s losses.

To date, Jean-François de Clermont-Tonnerre has not only been declared innocent by the Luxembourg court but also named as one of Gaglio’s victims. The Swiss part of the case is still under investigation.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes