Dubai: The Dubai International Financial Centre Court (DIFC Court) on Thursday ruled in favour of Al Khorafi, a prominent Kuwait-based business family in its case against Bank Sarasin-Alpen and its Swiss parent Bank Sarasin over a case relating to investment losses.

The court found Sarasin sold unsuitable investments to Al Khorafi family members in 2007 and 2008, and should pay compensation to the family, deputy chief justice John Chadwick ruled on Thursday.

A Bank Sarasin-Alpen official said it is studying the ruling for further action.

“We are looking at all aspects of the court ruling and an appeal will be the natural course of action,” Rohit Walia, Chief Executive Officer of Bank Sarasin-Alpen Middle East (BSAME), told Gulf News.

Sarasin has 14 days to appeal. In yesterday’s ruling no figure for compensation was set. However, sources said Al Khorafi family is claiming damages in excess of $26 million (Dh95.4 million).

Rafed Abdul Mohsen Bader Al Khorafi, along with his wife and mother, have been seeking compensation for losses they suffered after purchasing structured financial products from the Swiss wealth manager’s Middle Eastern operation called Bank Sarasin-Alpen in 2007 and in early 2008.

Al Khorafi and family initiated legal action against Bank Sarasin-Alpen Middle East (BSAME) in the DIFC Courts in late 2009 for losses resulting from investments undertaken with Bank Sarasin & Co Limited, on the advice of BSAME.

Capital-protected instruments

The Kuwait business family filed a case alleging that the bank provided “negligent” investment advice. The case claimed that the family lost about $75 million after Bank Sarasin-Alpen (ME) Limited and its parent recommended they invest in complex financial products instead of capital-protected instruments as they requested, according to a claim filed December 9, 2009 in the DIFC Courts.

“It is said that he [Al Khorafi] overreached himself and his schemes fell apart when markets crashed and that he has no one to blame but himself.
I do not take that view,” said Justice Chadwick.” “The present is a clear case of miss-selling unsuitable investments to an unsophisticated investor, and to his equally unsophisticated wife and mother.”

Al Khorafi and family claims that they were advised to undertake risky investments which were opposed to their investment requirements. While they intended to invest in capital-protected products that would provide income to meet interest payments on the loans and generate a surplus, the bank recommended products that didn’t guarantee the capital, according to the claim. The claimants alleged that BSAME failed to advise adequately as to the risks associated with such products and failed to assess whether such products were suitable for the claimants.

This the biggest ever miss-selling case in the region and to that extents banks and asset managers are closely waiting for its final outcome. “It will set a precedent in such cases in the region and will have wide ramifications of companies selling investment products and providing investment advice,” said the CEO of a private bank.