Banks, Financial Services, Latvia, Legislation

In Grube's opinion, "not even the Bolsheviks acted like this." Kargins and Krasovickis have turned to courts because the LPA and Parex banka last December claimed that they had to pay the state almost LVL 100 million.

As reported, Kargins and Krasovickis' claim against the Finance Ministry, Parex banka, Latvijas Hipoteku un zemes banka (Latvian Mortgage and Land Bank, Mortgage Bank) and the LPA, submitted to the Riga Regional Court, demands that the Parex banka takeover agreement signed in 2008 is recognized as no longer in force.

At the end of 2011, Parex banka and the LPA turned to the Riga Regional Court claiming that the former Parex banka shareholders Kargins and Krasovickis compensate more than LVL 12 million to the LPA as well as more than LVL 83.7 million to the bank, plus an LVL 4.5 million contractual penalty. The total amount of the lawsuit was LVL 99.5 million.

The bank and the LPA had concluded after an analysis of the 2008 agreement, which served as the basis for Parex banka bailout by the state, that several guarantees and testimonies presented by the sellers, that is, Kargins and Krasovickis, were inaccurate and false. Therefore, Kargins and Krasovickis violated the agreement, which provided that they would be held responsible if false information had been provided about the actual situation at the bank upon the moment of the signing of the agreement. Parex banka has established that the actual amount of losses that should have been noted in the bank's balance sheet was larger by at least LVL 82 million as of October 31, 2008 than that indicated by Kargins and Krasovickis.

Grube emphasizes though that the lawsuit that Kargins and Krasovickis filed this past March is based on the fact that in October 2008, when active support was being provided for many banks all over the world, the Latvian authorities kept believing that the global financial and economic crisis would not affect Latvia, and there were no regulations in place on providing support for commercial banks or on bank bailouts by the state.

Everyone was aware that a collapse of Parex banka would destroy the entire financial system of Latvia, however, the state had no mechanism to prevent this. As a result, the state tried to make impression that Kargins and Krasovickis signed the bank bailout agreement of their own free will in November 2008, informs Grube.

However, the applicable law was only drawn up after the Parex banka takeover, and it came into force only on December 31, 2008. According to this law, if a bank's shareholders do not voluntarily hand over their shares to the state, the given bank may be taken over for a price decided by the state. This means that the bank's shareholders may receive a symbolic price for their shares, however, they cannot be held otherwise responsible.

Therefore, the lawsuit of Kargins and Krasovickis claims that they may not be treated otherwise than provided for in the said law, because it is not their fault that the state had not timely prepared for the global financial crisis, and had not timely adopted the relevant European Union regulations.

As reported, the state took over Kargins and Krasovickis' shares in Parex banka on December 5, 2008. At the moment, the LPA holds 83.07% stake in Parex banka, and the European Bank for Reconstruction and Development – 13.61%.