Deutsche Bank to Pay $2.5B for Rate Rigging

Financial firm Deutsche Bank (DB) will pay a $2.5 billion fine to regulators in the United States and Britain for its involvement in rate rigging. The German lender also will fire seven of its employees.

This is the largest penalty to date against a financial institution over allegations of benchmark manipulation. As part of the deal, Deutsche Bank’s subsidiary in London has pleaded guilty to criminal wire fraud charges. Meantime, the parent group has arrived at a deferred prosecution deal to resolve U.S. wire fraud and antitrust charges.

The large fine is reflective of the banks’ big market share for financial instruments tied to interest rates on mortgages, credit cards, student loans, and credit cards that the benchmarks help set.

The regulators criticized Deutsche Bank for what they considered its poor oversight of the employees and traders that played a part in setting the rates, as well as the bank’s failure to address warning signs of misconduct. They accused the bank of misleading investigators in their probe into the rate manipulations.

Authorities believe that Deutsche Bank employees in four countries purposely fixed interest rates from 2005 and 2011 even though they knew it was wrong. Traders from Deutsche Bank and other investment banks colluded with one another to assist their own trading position. Their actions cost borrowers millions of dollars.

As part of the settlement Deutsche Bank will set up an independent monitor who will make sure that the bank abides by New York laws. The bank will have to let go of seven managers believed to have played a part in the rate rigging. Some 29 Deutsche Bank employees are thought to have been involved. The majority of them are no longer at the bank.

The U.S. regulators involved in the settlement include the Justice Department, which will get $775M, the Commodities Futures Trading Commission, to receive $800M, and the office of Benjamin M. Lawsky, who is New York State’s Superintendent of Financial Services, will receive $600 million. Deutsche Bank also settled with Britain’s Financial Conduct Authority, which will receive approximately $340 million.

Deutsche Bank traders are accused of manipulating the London Interbank Offered Rate, also known as Libor, the Euroyen Tokyo Interbank Offered Rate, called Tibor, and the Euro Interbank Offered Rate, called Euribor. The benchmarks are a barometer of the financial system’s health.

The SSEK Partners Group is securities fraud law firm.

Deutsche Bank to Pay $2.5 Billion Fine to Settle Rate-Rigging Case, New York Times, April 23, 2015

Deutsche Bank Pays $2.5 Billion To Settle LIBOR Manipulation Suit, Forbes, April 23, 2015

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