September 23, 2009 (FinancialWire) (Via “The Komisar Scoop”) (By Lucy Komisar) — In February, 2008, Julius Baer Americas Inc., now Artio Global Investors Inc. (NYSE: ART) — which owns Julius Baer Investment Management/Artio (JIBM/Artio), and is a subsidiary of Zurich, Switzerland-based wealth manager Julius Baer Holding Ltd. — filed (with the SEC) to go public with an initial offering of up to $1 billion of common stock on the NYSE. That filing stated that the offering would be handled by Goldman Sachs (NYSE: GS) and Merrill Lynch. The IPO was subsequently postponed, and Merrill Lynch has since merged with Bank of America (NYSE: BAC).

The IPO is now scheduled to debut today (Wednesday), September 23. According to Reuters.com’s “Factbox IPO Line-up”, Artio Global, “the U.S. asset management arm of Swiss Bank Julius Baer”, is officially set to price and begin trading, with proceeds estimated to be $585 million, based on 23.4 million shares at $24 to $26 per share. Goldman Sachs is listed as the lead manager for the offering.

In the same vein as our recently-published commentary by Bud Burrell (http://www.financialwire.net/2009/09/18/burrell-091809/) documenting the over four-year lag time between the SEC receiving  Harry Markopolos’ 17-page letter citing possible scenarios in which Bernie Madoff might be committing financial fraud, and the recent confirmation of that actually being the case — here is a similar retrospective of Artio, courstesy of Lucy Komisar:   

President Barack Obama said he would crack down on firms that use offshore centers to evade taxes. He could begin with a New York subsidiary of one of the world’s largest private banks, which used a Cayman Islands company to shift its profits.

Why would a New York fund manager run operations through an office in the Caymans? “This type of structure is for optimizing taxes,” explained Max Obrist, a Cayman Islands official of the global, Zurich-based Julius Baer Group.

He told Inter Press Service (IPS) that “generating” the income where a company was actually based, “you would pay much more taxes”. Obrist was describing a company shifting claimed earnings to tax havens to evade home taxes. He allegedly helped Julius Baer Investment Management (JBIM) New York do just that.

Obrist is a director of Baer Select Management (BSM), a Cayman Islands company. According to a whistleblower who used to work with him in the Caymans, BSM is a fake firm created by Julius Baer to sign agreements with JBIM and other subsidiaries so they could evade taxes.

The whistleblower, Rudolf Elmer, 53, a German, was chief operating officer of Julius Baer Bank & Trust Company (JBBT), Caymans, at $212,000 a year and served on the BSM board from 1999 to November 2002. JBIM paid fees to BSM to “manage” its investments. Elmer told IPS that JBIM moved to BSM profits it should have reported to the U.S. Internal Revenue Service.

JBIM is now called Artio Global Investors. It manages $72 billion in assets. It has some 900 institutional clients, including corporations, pension funds, endowments and foundations and major financial institutions as well as more than 700,000 mutual fund shareholders.

Its chief executive and chief investment officer Richard Pell and head of international equity Rudolph-Riad Younes were paid $120 million during the first nine months of 2007, leaving the company with income of $48.6 million.

Artio is a subsidiary of Julius Baer Group, Switzerland’s largest private banking group with over $300 billion in assets invested on behalf of institutions and very wealthy individuals. Julius Baer’s reported profits in 2007 were more than $1.1 billion. It has 30 offices in world financial centers, from New York and London to Dubai and Tokyo. BSM is a Julius Baer subsidiary.

Elmer said, “There was a strategic plan adopted in 1996 to utilize Baer Select Management, JBIM New York and JBIM London to benefit from the offshore system.” He said that JBIM assigned management functions to BSM in order to award it a performance fee. He provided backup documentation to IPS, including financial spreadsheets.

He said that Obrist in the name of BSM ratified a few decisions, but really worked for JBBT. He said that control was exercised and decisions taken by JBIM New York or Julius Baer Investment Funds Services Ltd, Zurich, which were part of Bank Julius Baer & Co, Zurich.

According to Elmer, JBIM made a proposal to Julius Baer Investment Management, Zurich, to launch a fund, and Zurich approved. JBIM did the paperwork and other organizational tasks with the help of JB Zurich and Caymans lawyers.

The offering memorandum said that Baer Select Management was appointed investment manager, Elmer said, and BSM appointed JBIM investment advisor.

JBIM was generally listed as a fund “advisor”, though some public documents said that JBIM managed funds. Elizabeth Nesvold, founder of the New York investment-banking boutique Silver Lane Advisors LLC, noted that though investment managers make most of their money from performance fees, most of the JBIM’s revenue was claimed from advisory fees.

A call to the Grand Caymans phone number for BSM was picked up by a receptionist for Julius Baer Bank and Trust Co Ltd (JBBT). “Is this the number for Baer Select Management?” she was asked. “Yes,” she replied, and passed the call to Max Obrist. He identified himself as BSM’s director. He had a few other jobs. The Jan. 13, 2000 minutes of the JBBT management committee said, “Direct Money Market dealing has started. Max Obrist has assumed responsibility for this activity.”

He was also listed as a director of Directorate Inc., British Virgin Islands, the corporate director of some Julius Baer funds.

Describing BSM’s tasks, Obrist explained, “We have to follow stocks, monitor their investment policies, we monitor the risk reports we receive from the investment advisor and check if there are performance fee calculations involved if they are executed properly, all monitoring duties. We are in contact with the external auditors and the regulatory authorities and Cayman Islands monitoring authority.”

He said BSM’s fee was “a percentage of profits, and it depends on what type of duties we have to do here from Cayman.”

Why was BSM needed? He replied, “That’s an interesting question. I don’t always know when they start something. They decided on a much higher level. I wasn’t involved. We were told: ‘You act as investment manager for these new funds’.” But he didn’t manage, he “monitored”.

Fees paid to BSM resulted in lower company profits and taxes for JBIM. Fund managers generally take profits of 1 or 2 percent of assets plus 10 to 20 percent of investment gains. As the funds had high values, that involved substantial amounts. According to Elmer, BSM, acting through a board whose members worked for JBBT, transferred profits via several offshore companies to Julius Baer Holding Ltd, Zurich.

Obrist denied that BSM is a shell company. He said, “We are physically here in the Cayman Islands, not just a post office box like some companies trying to save taxes without doing anything physically.”

He insisted, “BSM is to give service from an offshore place and at the same time we can within Julius Baer optimize taxes, yes. But we are physically here. We do our job as investment manager. If Baer Select would be here just as a post office box company and generate the millions in Cayman as income instead of in the U.S. or the U.K. or Switzerland, then that would not be a very smart thing.”

Obrist said BSM stopped working for JBIM New York four or five years ago after it closed some hedge funds. However, JBIM/Artio would still be potentially liable for unpaid taxes, as the U.S. has no statute of limitations for tax fraud.

Artio CEO Richard Pell did not reply to numerous phone messages and emails describing this story and requesting an interview. Martin Somogyi, spokesperson for Julius Baer, Zurich, emailed that the company always adhered to applicable regulations and was regularly audited, but that it would not agree to an interview. (Its global auditor is KPMG.)

Julius Baer Americas Inc. (now Artio Global Investors), which owns JBIM/Artio, filed with the SEC in February 2008 its intention go public with an initial offering of up to $1 billion of common stock on the NYSE. The filing stated that the offering would be handled by Goldman, Sachs and Merrill Lynch. The IPO was subsequently postponed.

Sources: Courtesy of the original “The Komisar Scoop” (February 5, 2009) article posted at TheKomisarScoop.com (http://thekomisarscoop.com/2009/02/exclusive-how-one-funds-profits-ended-up-in-the-caymans), as well as the corresponding, syndicated (February 5, 2009) Inter Press Service (”IPS”) article posted at the IPS web site (http://www.ipsnews.net/news.asp?idnews=45683).

Also see Lucy Komisar’s related article from the “Evening Standard” (London), Jan 6, 2009, entitled “Swiss bank’s crafty strategy shows how difficult it is to clamp down on tax havens”, posted at AllVoices.com (http://www.allvoices.com/contributed-news/4160825).

Previously published FinancialWire(tm) articles by Lucy Komisar are accessible via the FinancialWire(tm) web site (http://www.financialwire.net/?s=lucy+komisar).

Lucy Komisar is an investigative journalist who writes about the offshore bank and corporate secrecy system. Her articles are posted at “The Komisar Scoop” web site (http://thekomisarscoop.com/). Readers are invited to receive “The Komisar Scoop” directly, via Ms. Komisar’s direct email opt-in system (http://thekomisarscoop.com/mailman/listinfo/subscribers_thekomisarscoop.com).

Additionally, of potential interest to readers, WikiLeaks.org (a self-proclaimed “strong and independent voice for global justice”) offers editorial commentary entitled “Bank Julius Baer: Grand Larceny via Grand Cayman” (http://wikileaks.org/wiki/Bank_Julius_Baer:_Grand_Larceny_via_Grand_Cayman).

Readers interested to see Artio Global-related filings are referred as follows:

“Artio Global Management LLC, formerly: Julius Baer Investment Management LLC”, SEC filings through September 13, 2009, are accessible via the SEC web site under CIK# 0001316367 (http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001316367).

“Artio Global Investors Inc., SIC: 6282 (Investment Advice), formerly: Julius Baer Americas Inc.”, SEC filings through September 18, 2009, are accessible via the SEC web site under CIK# 0001419178 (http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001419178).

“Artio Global Investment Funds, formerly: BJB Investment Funds / Julius Baer Investment Funds”, SEC filings through September 4, 2009, are accessible via the SEC web site under CIK# 0000887210 (http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000887210).

“Artio Global Equity Fund Inc., formerly: European Warrant Fund Inc / Julius Baer Global Equity Fund Inc.”, SEC filings through September 4, 2009, are accessible via the SEC web site under CIK# 0000863903 (http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000863903).

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