A legal fight shows the symbiotic relationship between the superwealthy and their money whisperers.

When Moisés Cosío Espinosa’s car sputtered to a halt on a Los Angeles roadside, he knew who to phone for help, and it wasn’t a relative or the AAA. Instead, Cosío dialed a number three time zones away—the office of Iñigo Domenech, his private banker in Miami.

Domenech’s team at Citibank summoned roadside assistance. When the crew reached the scene, they found nothing wrong with the car. Cosío, one of Mexico’s richest men, had simply run out of gas.

Cosío was 14 when his father died and left him a vast inheritance, and he’d come to depend on his private bankers. Now 36, he says in a lawsuit filed in a Florida court that he relied on them too much. Domenech, in particular, wasn’t running his finances so much as managing his life. And, Cosío says, as the banker changed employers, from Citibank to Credit Suisse to Morgan Stanley, he was using his prized client to build a fortune of his own. Cosío alleges that Domenech traded excessively with his accounts to generate extra fees, and that the banker also worked secretly with another money manager to accumulate their own stakes in companies using his assets. In all, he says in the lawsuit, the banker and his allies wrongfully pocketed tens of millions of dollars.

Domenech says Cosío’s claim is pure fiction, and has denied all wrongdoing. He told a Florida court that his rich client wasn’t the neophyte he claimed to be, but a sophisticated investor who employed complex tax and investment strategies in close communication with his advisers, and that he signed off on trades. Domenech, through his attorney, declined to comment on this story. Whether Cosío was a victim or just looking for someone to blame for a banking relationship gone awry is at the heart of the lawsuit between the two in Miami.

Some people around Domenech knew that he had a very big client but didn’t know Cosío’s name. They spoke instead of el niño de oro—the golden child. Fees and commissions from just one gilded customer can support a banker and a crew of support staff; collectively they can power entire “private bank” units inside giant financial institutions. These white-glove services hook up the wealthy with everything from investment funds to currency trades to venture investments.

The story of the legal fight between Cosío and Domenech is drawn from court and securities industry documents, press reports, and interviews with more than a dozen people familiar with parts of the relationship. It provides an unusually close look at how an ambitious money whiz can cultivate the trust of a client and become ever more embedded in his financial life. You might even call this a step-by-step guide to profitably banking—or, according to Cosío’s allegations, bilking—the ultrarich.

1. Find a Client Who Really Needs You

Moisés Cosío was born into a family that once controlled a banking empire. One grandfather co-owned two of Mexico’s largest banks. The other was Bancomer’s majority owner and president. When Cosío was a youngster, he saw bankers as reference points for integrity. “My family banker was a gentleman,” he says in an interview. “A very respected individual on whom my family put unconditional trust.”

By the time Moisés came along, the Mexican government had nationalized its banks. His father and uncle invested their fortunes back into other banks and luxury hotels. When Cosío’s father died, the uncle produced a will and claimed he was due the bulk of the money, triggering a yearslong legal battle. Cosío prevailed, inheriting hundreds of millions of dollars. He was 17.

Around the same time, Domenech started at Citi’s private bank in Mexico. At the time his pairing with Cosío seemed like a cozy match between two sons of affluent Mexican families. Well-dressed and confident, though still in his 20s, the banker had competed in the super-G alpine event at the 1992 Winter Olympics in Albertville, France. He’d finished 85th, but it was quite a back story just the same.

With Domenech minding the finances, Cosío could focus on school and, later, passion projects such as producing films. Domenech arranged planes, boats, nights out, and, for several years, NBA All-Star Game tickets. The two palled around in Monaco and Spain and, according to Cosío, took joint vacations with their wives. The telephone call Cosío placed from a Los Angeles roadside more than a decade ago was representative of the relationship, according to people with knowledge of it. By then, Cosío was approaching his Citibank team for pretty much everything. And if they said to sign a document, he’d sign, those people say.

Cosío says he laid out the ground rules but trusted the bankers to do the rest. He says that from the time he started working with Domenech, he and his family made it clear that their goals were modest. “It was always about growing moderately and preservation of wealth,” he says. “Not winning as much as possible.”

2. Don’t Make Boring Investments

Say you’re an investor with tens or hundreds of thousands of dollars. You could put your money in stocks and bonds using a cheap index fund, which routinely outperforms high-cost money managers. But if you have tens or hundreds of millions, you gain entry to a wider world of exotic investments. Strategies that are bespoke, just like your suits. Who hires a private banker to pick funds off the rack?

If Domenech’s clients wanted plain-vanilla stocks or the like, he’d deliver. But according to people who worked closely with him from his early days at Citibank, his two favorite plays were more exotic.

First, he liked structured notes. These are essentially contracts created by banks that promise payouts based on the performance of some stock, bond, or index. They usually come with some protection against losses, but caps on potential gains. They can also come with hefty fees.

But Domenech’s signature strategy, according to people who worked with him, was currency trading. In foreign exchange, it’s common for banks to lend money to their clients for investing. Known as margin trading, this amplifies potential gains as well as losses. Domenech’s trades for Cosío were big. He’d occasionally use as much as $30 million or $40 million to make bets worth $300 million to $400 million, according to a person who worked with him. It’s unlikely that Cosío would ever lose that amount—the bets are short term and currencies trade in fairly predictable ranges—but the size, including the leverage, affected the fee. With commissions on trades running around 0.05%, a $400 million trade would have generated fees of $200,000.

Cosío declined to speak about Citibank, which he hasn’t accused of wrongdoing, and the bank declined to comment. Domenech, in his response to Cosío’s lawsuit, says he kept his top client fully informed. They talked frequently by phone. For face-to-face meetings, he’d go see Cosío in Mexico City—visits that continued even after Domenech decided, around 2004, to move his Citibank practice to Miami, the financial capital of Latin America.

3. Grow With Your Client

The financial crisis hit, and Citibank tottered. But Domenech found a landing place. In 2009 he took an offer from the U.S. brokerage unit of Credit Suisse Group AG, bringing his wealthy client with him in a deal that both dialed up his pay and the pressure to earn it. Like many commercial banks, Citibank had paid a salary and annual bonus. Credit Suisse dangled a multimillion-dollar package that was tied to the revenue Domenech brought in, according to a person familiar with the matter. During Domenech’s time at Credit Suisse’s Latin American private banking shop, his team was one of its top earners. He gained entry to Miami’s waterfront set, buying a $6.2 million mansion in Coral Gables, and traded up from a condo in Colorado to a ski chalet.

Private bankers must perform a balancing act: Keeping costs low is good for the client, and fees are good for the bank. The banker has to find a strategy to keep everyone happy. Whatever products Domenech recommended to clients, they would have disproportionately affected Cosío. The roughly $500 million he managed for Cosío at one point accounted for about two-thirds of his client assets. Cosío alleges Domenech and his team deployed his money in a currency and securities trading strategy “designed to maximize fees and commissions” for banker and bank alike at Credit Suisse—an approach Cosío says he was unaware of at the time. Although these particular claims are mentioned in the lawsuit, Cosío has pursued them in private arbitration with Credit Suisse, not in court. But one of his filings in the Florida civil case claims that losses from the allegedly fraudulent schemes, as well as from other investments outside the firm, cost him hundreds of millions of dollars.

A Florida judge ruled in July that all of Cosío’s claims against Credit Suisse should be heard by a private arbitration panel and not the court. (The suit against Domenech continues.) Credit Suisse called Cosío’s allegations “entirely without merit” and says it will vigorously defend itself, adding that it has “a robust and stringent system of controls and supervision.” It also denied wrongdoing in paying $650,000 to settle a complaint by another Domenech client who in 2015 alleged unauthorized trading of structured notes. Domenech did not contribute financially to the settlement, and has not commented on that case.

4. Build Successful Relationships

In 2009—around the time Domenech was moving to Credit Suisse—Cosío was joining the wave of ultrarich people setting up family offices. More exclusive even than private banks, these are companies devoted entirely to handling the money of an individual, a family, or, at most, a few of them. The idea is to build a team whose loyalty to the client is undivided. If a private bank is like a money concierge, a family office is a full-time financial Jeeves.

Cosío was by then in his mid-20s and his business affairs were becoming more complex. He would eventually produce more than two dozen art-house films, such as 2016’s Tenemos la carne (We Are the Flesh). He’d also assemble a collection of contemporary art and build a pro basketball team, the Mexico City Capitanes. And he’d be listed as the owner of properties in Mexico and a 59-story art deco office tower at Fifth Avenue and 42nd Street in New York.

Cosío offered Domenech the job of managing the family office. But the banker was finalizing his new position at Credit Suisse, and he demurred. According to Cosío, Domenech had another suggestion: Why not hire Ramon Perez?

The name was familiar. Perez had run most of Citibank’s private banking operations in Latin America back when Domenech was a new hire. With a career spanning Goldman Sachs and U.S. Trust, Perez was an experienced hand—though one who, in Cosío’s telling, was overshadowed by his young acolyte. “When Domenech was in the room, he always made Perez look smaller,” Cosío recalls.

Cosío says he asked Domenech to handle the hiring. Perez got the position and was paid $1.5 million annually to run the operation, known as Accendo Capital Group. The family office was located a few blocks from Domenech’s group in Miami’s waterfront financial district.

By then, Domenech and Perez had become close friends, acquaintances say. Cosío contends in his lawsuit that the two were not only friends but business partners. He alleges that the pair controlled a U.S. holding company. And Perez controlled a Mexican entity called Zerehcen Holdings, whose name was a mashup of parts of his and Domenech’s names. Perez is named as a defendant in Cosío’s suit. In court filings, Perez says he always acted appropriately as manager of the family office and kept Cosío fully informed of his activities.

5. Identify New Business Ventures

Cosío claims that not long after Domenech relocated to Credit Suisse, the banker and Perez began investing his money in startup companies while siphoning off shares and cash for themselves using the two holding companies. Who owned the holding companies, and how they were used, is disputed in the Florida lawsuit.

In one deal, Cosío took a stake in a company that owned Cantina La Veinte, an upscale Mexican restaurant near the offices of Perez and Domenech. Cosío’s court complaint says the two told him they’d put $1.6 million of his cash into the venture, a stake they said appreciated in value over time to $2.3 million. It looked like a winning investment, Cosío said in the suit, until he discovered that the bankers had in fact put close to $5 million of his money there, using part of it to acquire their own ownership stake. Perez told Bloomberg Businessweek through his lawyer that he gave accurate information to Cosío, and denied that he and Domenech diverted equity to themselves.

The Florida suit lays out other apparent conflicts. There was the time that Cosío says Domenech and Perez talked up an oil-and-gas company, leading Cosío to sign off on an investment of $820,000—only to learn later that his advisers collectively put in more than $660,000 of their own money as well. Cosío invested in a mining company that he later discovered was run by Perez’s son; according to an email in the Florida suit, the son had asked his father as a favor to have Domenech to sign off on a $1.5 million investment in the company. Perez says that he was a limited partner in the oil company along with other investors, and that Cosío knowingly put money into the mining venture.

Then again, it’s possible the relationship wasn’t the way Cosío describes it at all. Perez and Domenech say they weren’t cheating or overcharging—just banking. Domenech’s filings assert that Cosío was weaned on the banking business and knew “full well” what enterprises he was invested in, “on what terms, and with what co-investors.” He said Cosío didn’t want to disrupt his complex tax strategy by selling assets, so he invested in the companies and funded his “lavish personal lifestyle” by borrowing against his holdings.

Perez told the court that Cosío’s lawsuit involves a relatively minor amount of speculative money risked willingly in exchange for potentially big gains. He said Cosío encouraged him to stake his—Perez’s—own money on various investments. As for securities transactions, Perez through his lawyer says he traveled to Mexico City every other week for nine years to meet Cosío in person and brief him on his investments. Perez says that Cosío signed monthly confirmations documenting his trades. He also says he challenged some of the fees charged to Cosío.

6. Stay on Top of the Details

One reason the bankers’ response is plausible is that it’s hard to believe Cosío could have been so enduringly trusting. But there’s an explanation for this, Cosío says: Domenech and Perez limited what he knew. He says Perez wasn’t the only one of Domenech’s allies around him. Cosío’s personal assistant, for example, was a woman who’d previously worked for Domenech. Cosío says he learned that, in addition to collecting her salary from him, the assistant was also getting side payments from Domenech and Perez to monitor him and report back on his activities. Perez and Domenech deny this, and the assistant could not be reached for comment.

In 2015 an entrepreneur named Santiago León Aveleyra came looking for an investment. He was starting a ride-hailing application for Mexico City taxis and an acquaintance introduced him to Domenech and Perez. He didn’t meet their deep-pocketed client, but Cosío’s family office ultimately agreed to invest in the new company, L1bre—pronounced “libre.” To celebrate the deal, León says in an interview that he asked Domenech, Perez and others who were involved to a dockside dinner at his Key Biscayne home. León asked a mutual acquaintance to extend the invitation to Cosío, who was visiting Miami. León says he received word shortly before the dinner that Domenech didn’t want Cosío to attend. The entrepreneur chalked it up to protectiveness.

As part of the deal, a party connected to the family office would oversee the startup’s tech development. It was hard for León to argue with that: Accendo would soon invest about $30 million in L1bre, agreeing to take a 40% share. Later, León would be surprised at how much cash L1bre was burning. He says he discovered the company was spending $1 million or more a month on software development by an outside firm when he thought it was agreed L1bre would do it in-house. Domenech and Perez in separate responses to Cosío’s lawsuit deny misleading anyone about the outside software work.

By 2016, Domenech had moved to yet another bank, Morgan Stanley. Credit Suisse had decided to get out of U.S. private banking. The switch gave Domenech another big sign-on package—it was worth about $40 million if he met certain targets, according to a person with knowledge of it.

León began asking around about the advisers, and he says he heard things about Domenech’s foreign exchange trading practices that worried him. These inquiries may have begun the unraveling of the relationship between Cosío and his advisers. León says he eventually spoke with Morgan Stanley management in Miami, as part of an internal company investigation, the focus of which is unclear. He also tried to contact Cosío through acquaintances, he says, and was rebuffed. The family office sold its stake in L1bre in late 2017 to new investors for $15 million, about half what it had invested.

It wasn’t until early last year that Cosío accepted a meeting with León in Mexico City. León came away feeling for the young heir. “Moisés seems to regard money not precisely as a blessing,” he says. “He seems to associate it with trouble, conflict, family issues.”

Cosío won’t say what ultimately soured him on Domenech. By late 2018, Cosío replaced Perez in the family office. Then came his legal actions, as well as complaints to the Financial Industry Regulatory Authority, the securities industry’s private watchdog. In one Finra complaint involving Domenech, Cosío alleged that he was charged excessive fees on foreign exchange and that assets were misappropriated while he was a client at Morgan Stanley. (Morgan Stanley was not named in the Florida suit.) The firm settled the Finra matter in June for $15 million. Domenech denied wrongdoing and was not required to contribute to the payment to Cosío. He resigned last month.

By settling the case, Morgan Stanley put a complicated dispute involving one of its employees behind it. But it may have also seen another advantage. Cosío, the one-time golden child, remains a Morgan Stanley client. —With Justin Villamil

Source: www.bloomberg.com

 

“This article has all the ingredients for a Holly-Wood blockbuster! The Rock N Roll lifestyles of the Rich & Famous, and the Private Bankers who are supposed to take care of their every need.

This gives us a peek into the levels of trust and relationship a trusted financial advisor has with an Ultra high-net-worth individual.

It is truly a sad story of a relationship that deteriorated to the point of no return. Who exactly is at fault? The Private banker? The super wealthy client?  Maybe both, we will never know.

Please let us know what procedures you would put in place to avoid this situation from imploding. Not quite as explosive as Al Pachino in “Scarface”  but still, worthy of making a movie about.”