BPCE - 2018 Risk report / Pillar III

LEGAL RISKS Legal and arbitration proceedings – Natixis

Legal and arbitration proceedings – Natixis 10.2

Like many banking groups, Natixis and its consolidated subsidiaries are involvedin litigationbefore the courts and may be investigatedby regulatory authorities. As assessed at December 31, 2018, the financial consequences of litigationdeemedlikely to have, or which have in the recent past had, a material impact on the financial situation of Natixis and/or Natixis and its consolidatedsubsidiaries as a whole, or on their profitability or their business,have been includedin Natixis’consolidatedfinancial statements.

The most significant disputes are described below. Their inclusion in the list does not indicatethat they will necessarilyhave an impact on Natixis and/or its consolidated subsidiaries. The other disputes are deemed unlikely to have a material impact on Natixis’ financial situation or profitability and/or that of Natixis and its consolidated subsidiariesas a whole, or have not reached a stage where it can be determinedwhetherthey willhave suchan impact.

Madoff fraud

Outstanding Madoff assets were estimated at € 543.4 million at December 31, 2018, and were fully provisioned at this date. The actual impact of this exposure will depend on both the extent of recovery of assets invested in Natixis’ name and the outcome of the (primarily legal) measures taken by the bank. Furthermore,in 2011 a dispute emerged over the application of the Insurance policy for professional liability in this case, which had been taken out with successive insurers for a total amount of € 123 million. In November 2016, the Paris Court of Appeal confirmed (like the Commercial Court before it) the liability of the first-line insurers, in the amounts of the policies taken out, for the losses incurred by Natixis as a result of the Madoff fraud; however on September 19, 2018, the Court of Cassation reversed the contested ruling and returned the case to the Paris Court of Appeal to be heard by a differentpanel. Irving H. Picard, the court-appointedtrustee for Bernard L. Madoff Investment Securities LLC (BMIS), submitted a restitution claim concerningthe liquidationof amounts received prior to the discovery of the fraud through a complaint filed with the United States Bankruptcy Court for the Southern District of New York against several banking institutions, including a $400 million claim against Natixis. Natixis denies the allegationsmade against it and has taken the necessary steps to defend its position and protect its rights. Natixis has launched appeals, including a motion to dismiss, requesting that the case be dismissed on a preliminarybasis or prior to any ruling on merit, and a motion to withdraw the reference to transfer certain matters to the United States district court. These proceedingshave been subject to numerous rulings and appeals and are still ongoing. A November 2016 ruling by the bankruptcy court dismissed a number of restitution claims initiated by the trustee on

the grounds of extraterritoriality. In September 2017, the Second Circuit Court granted the BMIS liquidator and the defendants the right to appeal the bankruptcy court’s ruling on the grounds of extraterritorialitydirectly with the Second Circuit, thus avoiding the submissionof an intermediateappeal to the district court. The case is still in progress. Furthermore, the trustees for the liquidation of Fairfield Sentry Limited and Fairfield Sigma Limited have initiated a large number of proceedings against investors having previously received payment from these funds for redemptions of shares (over 200 proceedings have been filed in New York). Some Natixis entities have been named as defendants in some of these proceedings. Natixis deems these proceedingsto be entirely unfounded and is vigorously defending its position. These proceedings have been suspended for several years, and in October 2016 the bankruptcycourt authorizedthe trustees to modify their initial claim. The defendants issued a consolidated response in May and June 2017. In August 2018, the bankruptcy court issued a ruling on the Motion to Dismiss filed by the defendants.The judge ruled on only one aspect of the motion,namely that of personal jurisdiction, which was found to be lacking in the proceeding against the defendants. In December 2018, the judge issued a ruling on the Motion to Dismiss, dismissing the liquidators’ common law claims (unjust enrichment, money had and received, mistaken payment and constructive trust) and the contractual proceedings, but rejecting the Motion to Dismiss concerning the proceedingsbased on British Virgin Islands law while maintainingthe option of arguing for the applicationof section 546(e) (safe harbor). The judge is awaiting the defendants’argumentson the applicability of section546(e).

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Criminalcomplaints coordinated by ADAM

In March 2009, the Paris public prosecutor’soffice (Parquet de Paris) launcheda preliminaryinvestigationinto a complaintfiled by Natixis 2017, Natixis came under investigationfor two messages sent in the minority shareholdersand coordinatedby the Associationde Défense second half of 2007,at the beginning of the subprime crisis. proceedings,a judicial investigationopened in 2010. On February

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des ActionnairesMinoritaires(ADAM– Associationfor the Defenseof Minority Shareholders). As the plaintiffs have initiated civil

The judicial investigation is still being conducted.

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Risk Report Pillar III 2018