Articles Posted in Deutsche Bank

Deutsche Bank (DB) and the U.S. Department of Justice have yet to reach a settlement over allegations about the way that the German lender packaged toxic mortgages leading up to the 2008 financial crisis. According to The Wall Street Journal, The DOJ wants the bank to pay $14B. Deutsche Bank, however, said it has no plans to pay “anywhere near the number cited” and sees that figure as a starting point in negotiations.

In a statement, the firm said that it expected the final figure to be much lower and closer to what other banks have paid over similar allegations. InvestmentNews reports that it has not been uncommon for the DOJ in its investigation into MBSs to first put forward higher penalties than the eventual settlement that is reached.

Other firms and their deals over their mortgage lending activities include Bank of America (BAC) for $16.7B, Citigroup (C) for $7B, JPMorgan Chase (JPM) for $9B, Goldman Sachs (GS) for $5.1B, and Morgan Stanley (MS) for $3.2B. Goldman Sachs admitted to wrongdoing when it settled claims that it did not properly vet MBS before selling them as quality debt to investors.

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A U. S. district court judge said that Deutsche Bank AG (DB) must face part of a mortgage fraud case accusing the German bank of bilking investors who purchased over $5.4M of preferred securities. The plaintiffs, led by two individuals and Belmont Holdings Corp., claim that Deutsche Bank hid its exposure to the subprime mortgage market.

Judge Doborah Batts turned down the bank’s bid to throw out claims related to about $2.55B of securities sold in 11/07 and 2/08. She did, however, dismiss claims involving $2.9B of securities sold in 5/07, 7/07, and 5/08. Investors claim that Deutsche Bank should have notified them in offering documents that it had significant exposure to subprime markets via collateralized debt obligations and residential mortgage-backed securities. They believe that early notification could have prevented them from purchasing the preferred securities before their values dropped, resulting in billions of dollars of losses.

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SEC Issues Its Second Largest Whistleblower Award
U.S. Securities and Exchange Commission has awarded the ex-employee of a company more than $17M for a whistleblower tip that helped move the regulator’s probe forward, ultimately resulting in a successful enforcement action against that company. This is the second largest award that the regulator has issued since it started its whistleblower program in 2011.

To date, the program has awarded over $85M to 32 whistleblowers. The largest SEC whistleblower award so far has been $30M and it was issued in 2014. In the last five months alone, five whistleblowers have been awarded over $26M.

Under the SEC whistleblower program, whistleblowers may be entitled to receive a monetary award if the information they’ve voluntarily given the regulator is original and helpful, resulting in an enforcement action, and the monetary sanction arrived at is greater than $1M. In such cases the whistleblower may be entitled to 10-30% of the funds collected. The payments come out of an investor protection fund paid for by monetary sanction payments issued to the SEC for securities law violations.

Delta 401(K) Participants File Lawsuit Against Fidelity
Fidelity Investment units are now defendants in a 401(K) lawsuit filed by participants in a Delta Air Lines Inc. retirement plan. The plaintiffs want class action status.

They claim that Financial Engines, which was retained to give investment advice to the Delta Family-Care Savings Plan, is paying Fidelity a substantial chunk of the fees it receives from the 401(k) plan members. This has purportedly inflated the cost of investment advice services that are essential to the plan and is a violation of Fidelity’s fiduciary duty. They also claim that Fidelity’s management of BrokerageLink, a self-directed brokerage account, acquires share classes with high expense ratios that pay the broker dealer significant revenue-sharing payments. The plaintiffs believe Fidelity is “effectively” utilizing the assets of the plan to its benefit.

Fidelity claims the allegations are meritless.

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Martyn Dodgson, a former Deutsche Bank AG (DB) broker and managing director, and Andrew Hind, an accountant, were convicted of insider trading in London. The Financial Conduct Authority said that that Dodgson and another broker gave insider information about certain business deals to Hind, who then passed on the information to two other traders. They allegedly made $10.7M from trading half a dozen stocks in what is being called the largest insider trading case in the U.K.

The probe into the insider trading allegations, known as Operation Tabernula, has been going on for nine years. Already, three other convictions have been rendered related to the investigation. According to prosecutors, those involved employed conventional techniques and modern technology to conceal their trades. For example, they would meet at Indian restaurants where they’d hand over money in envelopes. They also purportedly used pay-as-you-go phones and encrypted memory sticks.

After investigators planted a bug in the office of day trader Benjamin Anderson, a conversation was recorded involving Iraj Parvizi, another day trader, in which Dodgson was described. Anderson and Parvizi, who were both acquitted of criminal charges, claimed that they had no reason to believe that the tips they were receiving was insider information.

It was in 2014 that former Moore Capital Management LLC trader Julian Rifat pleaded guilty to insider trading in an offshoot probe of this investigation. He admitted to sharing insider information that he received while employed at the firm to associate Graeme Shelley, who then traded to benefit the two of them. Shelley, who was formerly with Novum Securities, also pleaded guilty to insider dealing with Rifat and associate Paul Milsom, who entered his own guilty plea.

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Seven big banks have resolved a U.S. lawsuit accusing them of rigging ISDAFix rates, which is the benchmark for appraising interest rate derivatives, structured debt securities, and commercial real estate mortgages, for $324M. The banks that have reached a settlement are:

· Barclays PLS (BCS) for $30M (In 2015, Barclays paid $115M to U.S. Commodity Futures Trading Commission to resolve charges of ISDAfix rigging.)
· Bank of America Corp. (BAC) for $50M
· Credit Suisse Group AG (CS) for $50M
· Citigroup Inc. (C) for $42M
· JPMorgan Chase & Co. (JPM) for $52M
· Deutsche Bank AG (DB) for $50M
· Royal Bank of Scotland Group plc (RBS) for $50M

The deal must be approved by a Manhattan federal court. The defendants had sought to have the case dismissed, but US District Judge Jesse Furman in Manhattan refused their request. stating that the case raised “plausible allegations” that the defendants were involved in a conspiracy together.

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Securities Case Brought Over Caspersen Fraud
Shareholders of PJT Partners Inc. have brought a class action lawsuit against the publicly traded investment bank. The complaint comes in the awake of the arrest of Andrew Caspersen, who previously was one of the top officials at the bank’s Park Hill Group unit. Caspersen is accused of running a $95M fraud in secret. He is also a defendant in this lawsuit.

According to authorities, Caspersen falsely told investors that he was raising funds for supposed private equity investments when actually he was placing their money in high-risk options bets. He lost millions of dollars through options trading in his own accounts. Among his investors were the charitable foundation of a hedge fund and other institutional clients.

Caspersen was arrested and charged last month, as well as fired from PJT Partners. Investor Gregory Barrett claims that the investment bank misled shareholders by not disclosing that it had inadequate fraud prevention and compliance controls. The shareholder lawsuit points to purported evidence of alleged control failures, including an anonymous quote in the New York Times stating that Caspersen had availed of Park Hill Group’s payment system to give investors invoices and keep his scam going.

Sabal Sues Deutsche Bank Over Swap Transaction
Sabal Limited LP is suing Deutsche Bank AG (DB). Sabal claims that the German bank falsified documents after coming to the realization that the outcome of a swap transaction wasn’t going to be in its favor. Deutsche Bank is accused of improperly holding nearly $1M from the Texas asset management firm.

According to Sabal, in 2011, Deutsche Bank proposed a way of “cheapening” the firm’s capital costs through a swap tied to the DB Pulse USD Index. Deutsche Bank purportedly said that if the swap was based on this index it would generate a lot of funds. The transaction was finalized a few months later.

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U.S. District Judge Jesse Furman has turned down the request by Barclays Plc (BARC), Bank of America Corp. (BAC), Deutsche Bank AG (DB), Citigroup Inc. (C), Royal Bank of Scotland Group Plc (RBS), BNP Paribas SA, Credit Suisse Group AG (CS), HSBC Holdings Plc, Goldman Sachs Group Inc. (GS), UBS AG (UBS), JPMorgan Chase & CO. (JPM), Wells Fargo & CO. (WFC), and Nomura Holdings Inc. to dismiss the antitrust lawsuits accusing them of working together to rig the ISDAfix. The benchmark rate is used to establish prices on commercial real estate mortgages, interest-rate swap transactions, and other securities. Another defendant is ICAP Plc, which brokered transactions that set the rate for ISDAfix.

Furman said that plaintiff Alaska Electrical Pension Fund and other investors have brought up “plausible allegations” that there may have been a conspiracy between the defendants that allowed them to collude with one another. The investors are seeking billions of dollars in losses they believe they sustained because ISDAFix was allegedly rigged. In this case, the judge let the breach-of-contract claims and antirust claims proceed to trial but dismissed the other claims.

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US Supreme Court Turns Down Banks’ Bid that It Examine FDIC Case
The U.S. Supreme Court has decided not to review the 2015 ruling made by the Fifth Circuit Court of Appeals that revived the Federal Deposit Insurance Corporation’s (FDIC) securities case accusing Goldman Sachs (GS), Royal Bank of Scotland (RBS), and Deutsche Bank (DB) of misrepresenting the quality of securities it sold to Guaranty Bank, which later failed. The FDIC took the Texas bank into receivership in 2009 and sued the banks in 2014.

A judge in Austin, Tx. dismissed the case, citing a state law requiring that lawsuits be brought within five years of a mortgage-backed security’s sale. The complaint had been filed at least 9 years after the MBSs were sold.

Last August, the Fifth Circuit cited a 1989 federal law and revived the case. The appeals court said that the FDIC is allowed an extended time period to file complaints for institutions that it insures and have gone into receivership. Circuit Judge Carolyn Dineen King wrote that it was this federal law that made it possible for the FDIC to concentrate on dealing with bank failures rather than worrying about possible statutes and their limitations.

RBS, Goldman, and Deutsche then filed their petitioned with the U.S. Supreme Court. The banks pointed to a past holding by the highest court that barred other courts from preempting state law unless the U.S. Congress has made such a preemption clear.

Credit Suisse Resolves MBS Case for $29M
Credit Suisse (CS) must pay $29M to settle the National Credit Union Administration’s claim that it sold bad mortgage-backed-securities to credit unions. NCUA’s lawsuit revolves around MBSs that UBS (UBS) underwrote and sold to Members United Corporate Federal Credit Union and the Southwest Corporate Federal Credit Union for over $228M from ’06 to ’07. Both credit unions have since failed.

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The Securities and Exchange Commission is accusing ex-Deutsche Bank (DB) research analyst Charles P. Grom of certifying a rating on a stock in a manner that was not in line with his personal view. According to the regulator, Grom certified that his research report on 3/29/12 about Big Lots was an accurate reflecting of what he honestly believed about the company and it securities even though in private communications with firm research and sales staff, he indicated that he decided not to downgrade the discount retailer from a “BUY” recommendation because he wanted to keep up his relationship with the company’s management. Now, Grom must pay a $100K penalty.

The SEC contends that Grom violated Regulation AC’s analyst certification requirement, which mandates that research analysts include a certification that the views expressed in a research report are an accurate reflection of what they believe about a company and its securities. The regulator said that Grom became worried about what he considered cautious comments by Big Lot executives when he and his firm hosted them during a non-deal roadshow the day before he certified the report at issue in March 2012.

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Morgan Stanley Settles RMBS Case with FDIC
Morgan Stanley (MS) will pay $62.9M to resolve allegations that it misrepresented residential mortgage-backed securities prior to the 2008 financial crisis. The deal was reached with the Federal Deposit Insurance Corp., which sued the investment bank on behalf of Colonial Bank in Alabama, Security Savings Bank in Nevada, and United Western Bank in Colorado. All three banks failed after or during the crisis. By settling, Morgan Stanley is not denying or admitting liability.

According to the FDIC, in offering documents Morgan Stanley misrepresented claims for 14 RMBS mortgage backed securities. This is not the first time the investment bank has reached a deal over RMBS with the FDIC. In 2015, the firm resolved similar claims brought on behalf of Franklin Bank in Texas for $24M.

Also last year, Morgan Stanley arrived at a deal for $2.6B to resolve a U.S. Department of Justice probe into mortgage bonds. The government accused the investment bank of misrepresenting the quality of home loans packed into bonds.

Assett Management Firm Must Face RMBS Lawsuit Brought by Hedge Funds
A New York Court refused to grant TCW Asset Management Company’s motion to dismiss RMBS fraud claims brought Basis Yield Alpha Fund and Basis Pac-Rim Opportunity Fund. The Cayman Island hedge funds claim that TWC Asset Management marketed a system for dealing with the RMBS market that it claimed could determine which were the good investments. The purported strategy involved the collateralized debt obligation Dutch Hill Funding II, Ltd., which took a net long position on high-risk RMBS.

The two hedge funds invested over $28.1M in Dutch Hill in May 2007. By July, their investment had become worthless. They sued TCW Asset Management Company in 2012, accusing the firm of fraudulent misrepresentations and a failure to choose Dutch Hill’s RMBS collateral in the ways that it promised. The Basis Funds contended that the defendant knew that the investment strategy couldn’t get the job done.

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