Former International Monetary Fund chief Dominique Strauss-Kahn Shifts Focus from Sex Trial to Hedge Fund Probe.
Former International Monetary Fund chief Dominique Strauss-Kahn was acquitted in France on pimping charges this month, but his legal headaches may not be over.
While Strauss-Kahn will try to put the Lille trial with its days of embarrassing testimony behind him, he and his lawyers must shift their focus to Luxembourg and the failure of a hedge fund that bore Strauss-Kahn’s name. The state prosecutor there is reviewing complaints stemming from the collapse last November of Leyne Strauss-Kahn & Partners following the suicide of Thierry Leyne, who had co-founded the investment firm with Strauss-Kahn months earlier.
“The cases in Luxembourg will drag on for at least two years,” said Lex Thielen, a Luxembourg lawyer who isn’t involved in the cases. “All of this will continue to weigh on his reputation and on him financially.”
Strauss-Kahn stepped down as head of the IMF in 2011 after being charged with sexually assaulting a New York hotel maid. That case was dropped and he reached a civil settlement with the woman in 2012, but his presidential ambitions were dashed. The French prostitution case and his business partner’s death have further damaged his efforts to rehabilitate his professional reputation.
Jean Veil, Strauss-Kahn’s lawyer, said by telephone that there have been no developments in his client’s case in Luxembourg and declined to comment further.
The Luxembourg chief prosecutor is weighing two complaints brought by the former directors of the fund and one by Strauss-Kahn, which he filed after he had stepped down from the fund’s board, Henri Eippers, a court spokesman, said.
Swiss insurer Baloise Holding AG is also seeking to recoup 2 million euros ($2.3 million) a Luxembourg judge had ordered LSK pay the company in a separate dispute before granting LSK protection from creditors. LSK “failed to comply with agreed policies on general-risk standards,” Baloise spokesman Roberto Brunazzi said.
Leyne Strauss-Kahn & Partners was conceived as a hedge-fund vehicle that would draw on the Strauss-Kahn name in emerging markets like China to raise $2 billion. Instead, the fund relied too much on DSK’s star power and not enough on investing credentials, said Mohamad Zeidan, who worked as the fund’s chief operating officer for two months.
The fund filed for bankruptcy in November 2014, before substantial operations ever got off the ground, amid speculation about the depth of Leyne’s financial troubles. The Baloise complaint stems from an earlier Leyne investment vehicle that had ties to LSK.
According to a 2013 annual report from FirstCaution SA, a Swiss rent guaranty unit of LSK, Leyne and Strauss-Kahn planned “a global macro investment fund drawing from the expertise and personality of Dominique Strauss-Kahn,” and set about finding someone to run it.
Over the December holidays that year in the French ski resort of Megeve, Leyne met Zeidan, a Beirut-based business school professor with ties to Middle East investors, to discuss who could run the fund. In subsequent conversations, Zeidan’s name came up and in March, 2014, he agreed to be the fund’s chief operating officer, he said in an interview.
The trio traveled to China to court investors for the DSK Global Investment Fund as it was billed and preparations for the roadshow in Shanghai and Beijing had been rushed, Zeidan said.
While in China, Leyne publicized that the fund was targeting assets of $2 billion. Zeidan said he found himself in a press conference struggling to defend a figure he hadn’t been consulted on.
“LSK did not have extensive experience in managing a fund of this type and they didn’t appreciate the complexity of the task,” Zeidan said.
Politicians and diplomats from former U.S. Secretary of State Madeleine Albright to ex-World Bank President James Wolfensohn have gone on to start investment firms. But the competition is cutthroat and the Lille trial’s revelations about Strauss-Kahn’s sexual predilections would be damaging to a new fund.
“It takes just a very small thing for a hedge fund to be eliminated from consideration,” said Don Steinbrugge, a Richmond, Virginia-based hedge-fund consultant.
At the Lille trial in February, a number of prostitutes took the witness stand and gave details of their time with Strauss-Kahn at sex parties they were paid to attend. One said she cried during her encounter with him and another said he forced unplanned sex acts upon her.
By June, Zeidan had left the fund over concerns about its financial resources. Less than four months later, on Oct. 20, Strauss-Kahn followed, giving up the chairmanship of LSK “to dedicate himself to other activities,” the firm said.
Three days later, Leyne fell to his death in Tel Aviv from the high-rise Yoo Towers where he lived. Strauss-Kahn joined the LSK board in filing a complaint in Luxembourg on Nov. 4 asking for an investigation into whether company assets were misused.
The next day, LSK issued a statement saying that it discovered financial commitments after Leyne’s death that left its credit “irredeemably compromised” and declared bankruptcy.
Strauss-Kahn said in an interview in Le Parisien that he decided to follow in Zeidan’s footsteps and leave the firm, once he learned of the scale of Leyne’s debts. The whole misadventure cost him dearly.
“I probably lost my investment and I never received any remuneration” from LSK, Strauss-Kahn said. “To me, that’s a lot of money.”