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Financial Services Company Claims $160 Million Fraud

A financial services company that claims to have fallen victim to a $160 million fraud has defeated arguments that the Commercial Court should not entertain its claims for damages and restitution against the alleged perpetrators on the basis that it had itself engaged in illegal activities.

The company, which operated in the Russian market, claimed that it was duped into buying Argentinian warrants at prices vastly in excess of their market value. It sued 19 defendants, including a number of its former employees, who were said to have been implicated in the fraud and to have divided the profits between them.

The hearing of the case was well advanced when a number of the defendants put forward arguments that the evidence thus far presented indicated that the company had itself been party to illegality. It was alleged that the company had planned to sell the warrants on to a London-based asset management company at an even more inflated price than it had itself paid.

The Commercial Court, however, refused to stay the company’s claim on the basis that there was no clear evidence of illegality and that the arguments put forward by the defendants so late on in the proceedings were fundamentally inconsistent with their existing defence.

In dismissing the defendants’ challenge to that decision, the Court of Appeal found that their ‘evidentially weak and legally fragile’ arguments amounted to an entirely new case and that there was no proper basis for a plea of illegality against the company.

To allow such fundamental amendments to the defendants’ case at such a late state in the proceedings would cause ‘irremediable prejudice’ to the company, in terms of added costs and delay, and the refusal of such amendments was the only sensible course open to the Court.