Private Banker Moved Funds Undetected
He grew up in elite circles in Buenos Aires, acquiring the polish and privileged connections that paved the way for him to become a star private banker in New York to wealthy clients at UBS and JPMorgan Chase.
Hernán Arbizu said private bankers were under pressure. “We feel like we can take risks that other people don’t even dream to do, and that we can manage that risk — I don’t know why.”
But as Hernán E. Arbizu tended the fortunes of his gilded South American clients, he says he also illegally took millions of dollars from them for years while at both banks, without being detected.
What is more, Mr. Arbizu said he regularly dipped into UBS client accounts — and even visited the Swiss giant’s offices in Manhattan to ensure that the illicit transactions went through — for at least a year after he left UBS for a new job at Chase in the fall of 2006.
The fast-lane world of private banking has hit some serious speed bumps in recent months, its affluent clientele hit by Ponzi schemers, failed hedge funds and tax evasion investigations from Washington to Europe.
Several big European banks stumbled into the Madoff swindle, for example. More recently, UBS agreed to a $780 million settlement with the Justice Department to address accusations that it had helped wealthy Americans hide billions of dollars in taxes in secretoffshore bank accounts.
The curious case of Mr. Arbizu, whose career exploded when a Chase customer discovered and reported his crime in May 2007, offers a rare window into this well-shielded world, and raises questions about how carefully some of its largest institutions monitor their bankers.
In telephone and e-mail interviews held in the last eight months, Mr. Arbizu put himself in what he said was the “3 percent of bankers who at some point get confused because of the pressure. We feel like we can take risks that other people don’t even dream to do, and that we can manage that risk — I don’t know why.”
But he also said that UBS “didn’t have proper control over its bankers” and he accused the bank of creating an atmosphere of pressure to keep clients and reel in new ones. A spokesman for UBS declined repeated requests for comment on the case.
Mr. Arbizu, an Argentine native, fled the United States for Argentina in May 2008, just before he was to be indicted by federal authorities in New York on federal bank fraud charges. He insisted that he had not personally profited from his actions, but rather had shifted money between accounts to make good on unrealistic investment promises he made to keep important clients. “Of course I made a huge mistake — I feel really bad,” he said.
Yet while his actions pale in comparison with Bernard L. Madoff’s $65 billion Ponzi scheme, Mr. Arbizu’s tale contains the same “rob Peter to pay Paul” logic that apparently guided Mr. Madoff.
Mr. Arbizu, 40, said that in order to maintain an aura of success with major UBS clients, he pretended to remain their personal banker even after he left for Chase. His handpicked successor at UBS, Jose Cecilio Decastro, helped maintain the ruse until he resigned last July and moved to Venezuela.
UBS conducted an internal investigation of Mr. Decastro last year and determined that while he had “done foolish things” by helping Mr. Arbizu, according to a person briefed on the investigation, he did not warrant referral for prosecution.
In June 2008, weeks after Mr. Arbizu was indicted in New York, the Argentine authorities raided JPMorgan Chase’s offices in Buenos Aires and confiscated records of 200 wealthy Argentine clients, many of them Mr. Arbizu’s, whose names and assets were then published in a local newspaper.
But Mr. Arbizu, who says he is assisting an Argentine investigation of potential tax evasion and money laundering by Chase customers, was not caught by either bank’s tripwires and controls.
In fact, for more than five years, he was not caught at all.
In early 2003, he moved to Fairfield, Conn., to take a job at UBS as a private banker for wealthy clients in Argentina and Chile. He then worked out of the bank’s Park Avenue offices in Manhattan, where he earned $300,000 and bonuses for overseeing 13 accounts worth $200 million.
Mr. Arbizu maintained that he had felt overwhelmed by pressure from UBS early on to keep existing clients and bring in new ones. Just months after he joined the bank, he promised an important client, Alberto Lopez, a wealthy farmer in Argentina, that he would generate a 21 percent return on one of his accounts. “Of course, this was impossible,” Mr. Arbizu said.
Months later, Mr. Lopez wanted his investment return. Scrambling, Mr. Arbizu secretly dipped into Mr. Lopez’s principal, which he replenished by secretly tapping $2.8 million from another star UBS client, the Acevedo Quevedos family, wealthy and politically prominent in Paraguay.
Mr. Arbizu left UBS for JPMorgan Chase in November 2006 without informing the Quevedo family. The following April, the Quevedo family contacted Mr. Arbizu, saying that its members needed money from their UBS accounts to buy land. Panicked about covering the shortfall, Mr. Arbizu said he “pretended” he was still the family’s banker at UBS, and secretly raided a JPMorgan Chase account held by Natalio Garber, a prominent media executive in Buenos Aires, for the funds. He did so, he said, by faxing transfer requests with forged client signatures to UBS’s New York offices, and then visiting the offices to ensure with Mr. Decastro that the transaction had gone through. “Everybody there liked me and trusted me — ‘Oh great, you’re visiting us,’ ” Mr. Arbizu recalled. “I think that my presence there saying that it was O.K. made people not follow the controls.” Weeks later, Mr. Garber learned of the ruse and called Mr. Arbizu’s boss to complain. JPMorgan Chase fired him and alerted federal prosecutors in Manhattan, paving the way to an indictment that accused Mr. Arbizu of 12 illegal transfers while at UBS and JPMorgan Chase, totaling more than $5.3 million. Darin Oduyoye, a spokesman for JP Morgan Chase, said that the bank was “waiting for the U.S. government to pursue extradition” of Mr. Arbizu, but declined to comment further. In the interview, Mr. Arbizu said the 12 transfers, some to client accounts in tax havens like Andorra and the Netherlands Antilles, totaled only $2.8 million.Mr. Arbizu secretly made eight of the transactions from accounts held by his former UBS clients from March 2007 through March 2008, up to 16 months after he had left for JPMorgan Chase. JPMorgan has not dropped its lawsuit, but it has not made filings that would push its case forward. Last February it quietly closed a case that it had filed against Mr. Arbizu with the Financial Industry Regulatory Authority, the agency that monitors brokers, although a spokesman declined to say whether it had dropped or settled the case. By contrast, UBS has not sued Mr. Arbizu. But in May 2008, it filed a report with Finra to declare the bank had initiated an internal investigation of Mr. Arbizu a month earlier. The next month, UBS amended the Finra report to include details of $2.8 million in illegal transfers from an unnamed Paraguayan client. But UBS said in the amended report that it had received complaints about those transfers only in May 2008 — one month after it began investigating Mr. Arbizu for illegal money transfers. UBS quietly settled the Finra action for $1.44 million last December. In mid-June, UBS filed a broker report for Mr. Arbizu’s successor, Mr. Decastro, saying that he had left the firm amid an internal investigation of “violations of firm compliance and client confidentiality rules.” “I know I am stupid,” Mr. Arbizu said. “I feel that in all these years I had my head divided into two sections, in one small section all this problem and in the rest my ‘normal’ life.”
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