Dominique Strauss-Kahn investigated for fraud at LSK company

Paris prosecutor opened inquiry after businessman who lost €500,000 filed a lawsuit

Dominique Strauss-Kahn, the former director of the International Monetary Fund, could stand trial yet again, this time for fraud and misuse of corporate assets, the alleged offences for which "DSK" is under investigation by Paris prosecutor François Molins.

Four months ago, Strauss-Kahn was cleared of aggravated pimping by a court in Lille. He resigned from the IMF in 2011, after a maid at the New York Sofitel accused him of sexual assault.

The former economics professor and former French minister of finance is employed as a consultant by the governments of Serbia and Russia, and testified last February that he earned €2.4 million in 2014. The fresh accusations could undermine his livelihood.

Bankrupt fund

The most striking thing about the latest scandal is the disproportion between his ambition to establish a $2 billion investment fund and the pathetic state of LSK, the now bankrupt Luxembourg-based fund which he chose as a vehicle.

Strauss-Kahn met the Franco-Israeli businessman Thierry Leynes, his partner in LSK, shortly after the Sofitel scandal. By the summer of 2013, just before Strauss-Kahn became chairman of the board, LSK's parent company, Assya Luxembourg, was €13 million in debt. It had failed to pay telephone, electricity and office supply bills and was late paying salaries. The electricity had been cut in its offices in the prestigious rue Royal. Sloppy client records were not computerised but kept on paper.

While Leynes was negotiating his partnership with Strauss-Kahn, Christopher Cruden, director of the Swiss investment fund Insch, demanded his €400,000 back because he discovered that Assya was investing clients' money in other subsidiaries of the same group to inflate their share prices. La Bâloise Vie insurance company also noticed the malpractice and demanded its funds back.

Strauss-Kahn’s lawyer says he had “no operational role” in LSK and was himself a victim, having invested €103,000 in the creation of the group. Around the time Strauss-Kahn became chairman of the board, Ernst & Young resigned as its auditors, having expressed reservations about the real value of subsidiaries. The Luxembourg financial surveillance commission CSSF also warned the company to clean up its accounts.

In October 2014, Assya was ordered by the Luxembourg tribunal to reimburse the €2 million it owed La Bâloise Vie. Mr Strauss-Kahn resigned discreetly, saying he “could not accept” LSK’s “borrowing strategy”. Three days later, Leynes threw himself out of his 23rd floor apartment in Tel Aviv. Strauss- Kahn attended the funeral.

Preliminary investigation

The Paris prosecutor launched his preliminary investigation last July 28th, but it was not brought to public attention until yesterday, by the investigative journalist

Jacques Monin

, on Radio France and in

Le Parisien

magazine.

LSK’s 156 creditors are seeking €100 million, a sum described as “astronomical” by Mr Monin. “Where did it go?” he asked. “It was either catastrophic management or embezzlement.”

An unidentified former employee of LSK told Radio France that Leynes travelled to tax havens. “I think there is cash sitting in safes in places like Cyprus or Costa Rica,” he said. “Investigators should study trips made by people in charge during the year before the bankruptcy in 2014.”

The prosecutor opened his inquiry after a French businessman who lost €500,000 filed a lawsuit at the end of June. Other victims include Belgians, Greeks, Israelis, Macedonians, Mauritanians and Russians. Some are institutions such as the Banque de Luxembourg; others multimillionaires such as the Moroccan "cement king" Mohamed Ould Bouamatou. A Frenchman who invested his entire savings in the belief it would ensure the future of his handicapped daughter has threatened suicide.