G. I. Globinvestment Ltd v Federico Faleschini

Hearing dates: 31 January 2024, 1 February 2024

APPROVED JUDGMENT

I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic. This judgment was handed down remotely by the judge and circulated to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be Tuesday 5 March 2024 at 10:30am

INTRODUCTION

The Claimants in these proceedings claim that they have been the victims of a very substantial financial investment fraud. The Second Claimant, Matteo Cordero di Montezemolo, (“MDM”) and the Third Claimant, Luca Codero di Montezemolo (“LDM”), son and father respectively, are well known Italian businessmen. The First Claimant, GI Globinvestment Limited (“GIG”) is one of the di Montezemolo family investment vehicles, owned by family discretionary trusts and in practice run by MDM in conjunction with their trustees and advisers.

The claims arise out of substantial investments made by GIG and MDM in the Skew Base Fund (the Second Defendant). The Claimants allege that the investments were made on the advice of XY UK (the First Defendant), an English company authorised by the Financial Conduct Authority (“FCA”) to carry out regulated activities. XY UK is owned by Mr Migani (the Seventh Defendant). Its company secretary is the Eighth Defendant, Mr Faleschini.

GIG and MDM say that they engaged XY UK as a financial adviser because they were told by XY UK, Mr Migani and Mr Faleschini that it was an independent and conflict-free adviser. They also say that on XY UK's recommendation and on the understanding that XY UK was wholly independent from the Skew Base Fund, GIG and MDM invested very substantial sums in the Skew Base Fund.

However, it has transpired that at all material times, the Skew Base Fund was not independent from XY UK. The Claimants allege that XY UK and Mr Migani, were involved in creating it and that they were involved in its operation thereafter.

These allegations give rise to claims in deceit and conspiracy. There will be a trial of these claims starting in October of this year.

Mr Faleschini and the Leader Logic Defendants (the Ninth and Tenth Defendants, the “LL Defendants”) say that whatever may be said against the other defendants, there is no realistic case against them 1. They have therefore brought applications for strike out and/or reverse summary judgment. These have been argued with great focus and skill across two days of court time.

For the reasons which I will give below those applications fail. The case against these defendants is not fanciful and should be considered at a full trial.

THE FACTS

XY UK is a company incorporated in England and Wales which is authorised by the FCA to carry out certain regulated activities. It is a financial technology business, specialising in data technology and strategy consulting services for the high-end wealth management industry. At all material times, Mr Migani was the CEO and a director of XY UK and Mr Faleschini was the company secretary of XY UK and CFO of XY SA, a Swiss company in the same group.

Between 2016 and 2020, the Claimants engaged XY UK to provide certain services regarding their portfolio of investments. There is a dispute, to be dealt with at trial, as to whether XY UK was engaged to provide advisory services or not. So too is the importance of XY UK's independence. For present purposes it suffices to say that the Claimants say that XY's claim to independence was a driving factor behind XY UK's appointment: in its pitch to the Claimants, it emphasised its independence, and that – unlike the financial institutions with whom the Claimants were currently dealing – it did not recommend investments in products in which it had a financial interest, thereby preserving the impartial nature of its advice and reducing costs.

As noted above, XY UK is owned by Mr Migani and its company secretary is Mr Faleschini. Mr Faleschini is also the CFO of XY SA, XY UK's parent company, and the XY Group. He is also a director of a company connected to Mr Migani, called Twinkle Capital SA (“Twinkle”) (a Swiss company and the Sixth Defendant), which was involved in the events in question.

It is alleged that on 12 May 2016, Mr Faleschini attended a meeting with a Mr Nuzzo who acted as representative of GIG and LDM. It is alleged that at that meeting, he made representations as to the independence of XY UK when giving financial advice. The Claimants' case is that GIG and MDM (and LDM) engaged XY UK as a financial adviser because they were told by XY UK, Mr Migani and Mr Faleschini that it was an independent and conflict-free adviser. They say that on XY UK's recommendation and on the understanding that XY UK was wholly independent, the Claimants later made investments in the Skew Base Fund. This include investments in compartments investing in “HFPO” (High Frequency Price Opportunity) notes, i.e. market instruments that are close to their maturity, as well as investment in “MIN” (Market Insurance Notes) and other very similar investments.

The essence of the complaint is that it has transpired that at all material times, the Skew Base Fund was not independent from XY UK. Rather, it is said:

i) The Skew Base Fund was created with involvement on the part of XY UK and Mr Migani, who were involved in its operation thereafter. That company was a new company, with no track record, no infrastructure, and no public presence;

ii) XY UK recommended to its clients that they invest in the Skew Base Fund, and for present purposes it is accepted that all investors were directed to the fund by XY UK except for Twinkle, which was a connected company;

iii) Twinkle, a Swiss company owned by Mr Migani and incorporated specifically to establish and run the Skew Base Fund, and of which Mr Faleschini is sole director, received significant sums deriving from investments in the fund, purportedly for a significant (and the Claimants allege, concealed) role in operating the Skew Base Fund;

iv) The LL Defendants, companies owned by Mr Migani, also received substantial sums deriving from investments in the fund – again on the supposed basis of providing services to the fund, although there is no trace, in the documents, of any services of substance having been so provided;

v) In addition to his roles at XY UK and Twinkle, Mr Faleschini is married to Ms Viviana Gaveni, who is Twinkle's administration, finance and control manager and one of three directors of the General Partner of the Skew Base Fund (the third Defendant) (“SB GP”);

vi) There were undisclosed services agreements with the LL Defendants, also companies owned by Mr Migani.

It must be assumed for the purposes of the strike out applications that none of these matters were disclosed to the Claimants. The key issue overall is the allegation that all of the Defendants knew this. It is said that the representations which were made to the Claimants were false and fraudulent, given the Defendants' knowledge of the connections between the entities involved.

While many of the investments performed ahead of market initially they suffered substantial losses in March 2020, when the onset of Covid-19 pandemic brought about extreme market turbulence. At that time, the relevant compartments of the Skew Base Fund were liquidated. GIG and MDM lost substantial sums – possibly in the region of €50 million — as a result of the collapse in the value of those investments.

The Claimants say that had the true facts been known to them these losses would have been avoided, either because they would have taken independent advice before making the investments and would have not made them, or (had the true position been revealed subsequently) after having done so but before the investments collapsed, when they could have and would have been redeemed for their full value.

The same losses are also sought as damages for unlawful means conspiracy. The conspiracy in outline is that:

i) It is to be inferred that the Defendants combined together and/or acted in concert pursuant to an agreement or common understanding, with an intention to maintain the façade that the Skew Base Fund was independent of XY UK and managed by VP Luxembourg without any connection to or involvement from XY UK or related persons;

ii) The unlawful means used included deceit, breach of fiduciary duty and dishonest assistance;

iii) The fraud involved substantial sums, derived from investments in the Skew Base Fund, being paid to undisclosed corporate vehicles owned by Mr Migani.

The case against the First to Seventh Defendants will, as noted above, proceed to trial later this year. There have been attempts by some of those Defendants to strike out the case against them. One challenge (by the VP Defendants – a jurisdictional challenge with a merits element) did not succeed. Others were withdrawn. These...