How The Swiss Deal Was Done

The $1.25 billion figure that settled the claims of Holocaust survivors against Switzerland’s two largest banks was suggested by Brooklyn Federal Judge Edward Korman during an often testy, four-hour dinner meeting on the second floor of a sweltering Brooklyn restaurant.
“It was like a mock trial,” said one of the 20 participants.
Within days of the settlement, the large Italian insurance company Generali agreed in principle to pay $100 million to settle claims against it for failing to honor life insurance policies taken out by Jews killed in the Holocaust. The settlement is seen as a benchmark for a settlement of lawsuits against 16 other European insurance companies that similarly failed to pay Holocaust-related claims, according to a source close to the negotiations.
Regarding the bank settlement, one source described the dinner meeting as an attempt to convince the judge of the magnitude of the damages in the survivors’ $20 billion class-action suit against the Swiss banks, Credit Suisse and UBS. Korman had met with the parties the previous week and had questioned why the plaintiffs had rejected the banks’ $600 million settlement offer — perhaps as a negotiating tactic.
But other participants at the decisive dinner meeting viewed it as a way to demonstrate to the banks that there was enough evidence to warrant a sizeable jury award against them should the case go to trial. The banks were alleged to have hoarded the money of Holocaust victims after the war.
The group — attorneys for the plaintiffs, the banks and representatives of the World Jewish Congress — gathered on Aug. 10 at 7:30 p.m. at Gage & Tollner on Fulton Street. Those who were kosher ate a salad or simply sipped refreshments.
Michael Hausfeld, one of the plaintiffs’ lawyers, outlined the case against the banks as he sipped a glass of ice tea. He worked from an eight-inch thick briefing book, copies of which he distributed to the banks’ lawyers.
Roger Witten, the lead attorney for the banks, asked some questions.
“There were some heated conversations,” said one participant. “At one point the issue focused on whether the banks had any gold stolen by the Nazis. The banks said there was a law against that. But we had documents that showed that until 1942 they were taking in stolen gold, and we went into detail of just how much.”
But a source close to the banks said Witten remained largely mute because he was told that, at the plaintiffs’ request, he could not challenge their assertions.
At about 11 p.m. both sides concluded their presentations and all eyes turned to Judge Korman, the only one who was still wearing a suit jacket in the non-air conditioned room.
“The judge emphasized that this was a case that was not going to disappear, no matter which way he decided it,” said one participant. “That was critical.”
At that point, recalled one participant, the judge then said: “I believe one of the methods to settle this case would be a $1.25 billion settlement.”
The room fell silent. The only sound was from the traffic outside that could be heard through the open window.
The suggestion, said the participant, was designed to put the case in the best position for a settlement.
“He was saying that we had to come down from our $1.5 billion figure and that they had to come up from their offer,” he said.
The agreement in principle that was reached two days later is to satisfy all claims against Swiss industry, Swiss banks and the Swiss government, but not insurance companies. It brings to a close nearly four years of prodding by Jewish groups, political leaders and the U.S. government to get Switzerland to acknowledge its collusion with the Nazis and to pay survivors and their heirs for the material assets they lost.
A source close to the banks said the idea of a global settlement was attractive because without it, continuing strife with other Swiss businesses would have had an adverse impact on them. Also, he said, the $1.25 billion figure was within a range the banks had considered reasonable. And the banks were concerned that an ongoing audit of Swiss bank records could lead to a higher figure.
The dinner meeting on Aug. 10 was one of six meetings Korman held with the parties between July 27 and the date of settlement, Aug. 12.
“He just kept bringing us back to talk,” said one participant.
A decision about distribution will be made following a court hearing at which survivors are expected to testify. It is subject to court approval.
Korman is expected to formally accept the entire agreement within the next few weeks. Within the following 90 days, the banks must pay $250 million. Payments of $333 million must be paid over the subsequent three years.
The agreement led to an immediate end to threatened sanctions against Swiss banks by municipal financial officers across the country. The sanctions, many of which were slated to begin on Sept. 1, had added urgency to the negotiations.
Bob O’Brien, managing director of Credit Suisse First Boston, said the agreement puts to rest the role of the banks during the Holocaust and that now is a time of healing.
“The damage has been done,” he said. “We have to step back now and applaud the actions of the banks and rebuild the relationships damaged by this process. One of the strongest relationships in the last 100 years is that of the U.S. and Switzerland.”
Before the settlement was finalized, the plaintiffs’ lawyers rejected a bank request that the settlement include the $200 million humanitarian fund they set up on March 1, 1997. Applications for money from that fund began being distributed this week to needy American survivors who called a special toll-free number, (800) 549-6864.
Among those planning to apply is Kurt Herman, 68, of Philadelphia. He said he fled Austria in May 1939, about a year after Nazi occupation. His aunt, now 88 and living in a nursing home, left four months later.
“I live on a pension and Social Security,” he said. “My aunt is running out of money. I think this money is terrific. It’s about time. If they waited any longer, the older survivors would all be dead.”
Within days of the settlement, U.S. Sen. Alfonse D’Amato (R-N.Y.), who is credited with pressuring Switzerland to acknowledge its wartime complicity with the Nazis, revealed that a settlement was nearing completion with Generali, the Italian insurance company.
“If there is a settlement, it is because of D’Amato pushing everybody to reality,” said one of plaintiffs’ lawyers, Edward Fagan. “If Generali is settled a week after the bank case, it is no coincidence.”
Among those anxious for a Generali settlement is Janina Atkins of Manhattan, whose grandfather was the director-general of Generali’s Warsaw office before World War II and whose father was its legal counsel.
“I think this is a very good sign,” she said of the settlement talks. “At least they are acknowledging their responsibility. They have been sitting on this money at least 50 years and using it for their own benefit. The relatives of the people who bought these policies didn’t get anything.”
She said Generali refused in 1990 to honor her claim on the grounds its assets had been confiscated by the communist government in Poland. When she pressed the matter in 1997 when a class-action suit was filed against 17 European insurance companies, she was told that her grandfather had stopped making payments on his policy in 1931.
“It was a $10,000 policy,” she said. “He was the director-general of the Warsaw office. It is absolutely ridiculous that he would not have kept up the payments while selling thousands of policies to other people.”
Generali, she said, has no record of her father’s policy.