NEW YORK, Nov 13 (Reuters) – One might think that after
Madoff, Stanford and other Ponzi-like schemes, big banks would
be more careful about the money managers they do business with
– especially people running highly speculative investment
opportunities.

But it appears not everyone at the global banking giant
HSBC <HSBA.L> got the message.

Consider the case of Dividium Capital, a now-defunct
investment fund that was registered in the Isle of Man, an
offshore banking haven located in the Irish Sea. Dividium,
which operated out of Switzerland, promised investors high
double-digit returns from the sale of gold certificates backed
by an investment in a Russian gold mine project.

HSBC had been a primary depositary bank for the fund. Some
of Dividium’s investors say their money was wired to bank
accounts that the fund maintained at an HSBC branch in the Isle
of Man.

Dividium billed itself as an “international investment
firm, which generates its returns on the basis of ethical
principles with the objective of generating the best possible
yield for the person and investor,” according to some of its
marketing literature.

But Dividium was anything but ethical, according to
investors, lawyers and regulators.

Over the summer, Dividium was forced into bankruptcy by
Swiss authorities after some of the firm’s estimated 3,000
investors began complaining they weren’t getting updated
statements on their accounts and were unable to redeem their
money.

Soon after, Spanish authorities arrested a number of
Dividium’s promoters after determining that much of the 33
million in euros (about $49 million) the fund raised may have
gone missing.

To date, the Dividium story hasn’t received much attention
outside of Germany and Spain, where most of the investors live.
I couldn’t find a single story about Dividium in an
English-language publication or website, even though the firm
was registered in the Isle of Man and shared a London mailing
address with an accounting firm called Louw & Company.

London-based Risk Reward Ltd, a consulting firm, also did
work for Dividium, says a person close to the investment fund.

But that lack of attention may change. Some of Dividium’s
investors are looking for another deep-pocketed financial
player to be held accountable — and some Dividium investors
are considering targeting HSBC.

So far, HSBC has taken a hands-off approach to dealing with
the fallout from Dividium’s collapse.

I asked HSBC on a number of occasions to talk about
Dividium and the bank’s role in serving as a depositary bank
for the investment fund. Each time, an HSBC spokesman said the
bank could not comment on client matters. “We are obliged to
maintain a duty of confidentiality,” said Paul Harris, a bank
spokesman.

This response from HSBC sounds unconvincing. After all,
with Swiss regulators liquidating what little is left of
Dividium, there really isn’t much of a client to protect.

Equally mum on the topic of Dividium is Risk Reward. A
person answering the phone for the risk management firm
declined to comment.

Dean Louw, owner of the accounting firm that bears his
name, says his company never did any audit work for Dividium.
He says all the firm did was collect mail for Dividium –
originally called International Invest — and then forward it
on to the firm’s offices in Switzerland.

Mark Benedict, an American who sunk money into Dividium a
year ago, faults HSBC for not doing adequate due diligence on
Dividium’s backers. He also says the bank failed to keep
abreast of where the money that investors deposited with
Dividium was going.

Benedict says he invested with Dividium in part because he
had been led to believe by Dividium’s representations that HSBC
had vetted the investment fund and its promoters. HSBC’s
“failure to know its customer has directly cost myself and
3,000 other investors upwards of 33 million euros,” he says.

Martin Sach, an attorney with the German law firm
Winheller, says his firm represents about 20 investors in
Dividium and it too is considering pursuing claims against
HSBC.

“A lot of money was transferred to HSBC,” says Sach. “It
was their depositary bank. Dividium was not allowed to hold
client money for financial supervisory reasons. It’s possible
that HSBC is also liable for losses.”

The questions about controls at HSBC comes as the bank
appears to be a victim in a separate dubious scheme. Federal
prosecutors in New York say that HSBC is one of three giant
banks defrauded by financier Hassan Nemazee in an apparent $293
million Ponzi scheme.

Nemazee, a major donor to Democratic political candidates
like President Obama, has been indicted on charges that he
defrauded HSBC, Citigroup <C.N> and Bank of America <BAC.N>
into providing his company with hundreds of millions of dollars
in bank loans.

Prosecutors contend that in August, Nemazee drew down $75
million from a $100 million line of credit he had gotten from
HSBC to pay off a loan his company had gotten from Citigroup.

In the wake of the indictment, HSBC filed a civil lawsuit
against Nemazee claiming it was the victim of “an elaborate
scheme to deceive HSBC into believing that its loan was secured
by collateral, in the form of United States Treasury Notes,
when it was not.”

HSBC long has had a good reputation in financial circles
for doing due diligence and sniffing out potential scams. Maybe
it’s time to reassess whether that reputation is still
warranted.
— For previous columns, Reuters customers can click on
[GOLDSTEIN/]
(Editing by Martin Langfield)