Deutsche Bank

RMBS Cases and Institutional Fraud: Morgan Stanley to Pay $62.9M, Hedge Funds File Lawsuit Against TWC Asset Management, and Deutsche Bank Must Contend With Allegations Claiming Investor Losses of $3.1B

Published on: February 3, 2016 | by Shepherd Smith Edwards & Kantas, LLP

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.

Senator Warren Accuses the SEC of Poor Enforcement

Published on: January 31, 2016 | by Shepherd Smith Edwards & Kantas, LLP

U.S. Senator Elizabeth Warren has issued a report in which she claims that the U.S. Securities and Exchange Commission and the U.S. Department of Justice have been doing a poor job on enforcement when it comes to going after companies and individuals for corporate crimes.

In Rigged Justice: How Weak Enforcement Lets Corporate Offenders off Easy, Warren takes a closer look at what she describes as the 20 worst federal enforcement failures of 2015. The Senator noted that that when federal agencies caught large companies in illegal acts, they failed to take substantial action against them. Instead, companies were fined for sums that in some cases could be written off as tax deductions.

Some of the 2015 cases that Warren Mentions:
• Standard & Poor’s consented to pay $1.375B to the DOJ, DC, and 19 states to resolve charges that it bilked investors by putting out inflated ratings misrepresenting the actual risks involved in collateral debt obligations and residential mortgage-backed securities. Warren Points out that the amount the credit rater paid is less than one-sixth of the fine the government and states had sought against it, and at S & P did not have to admit wrongdoing. No individuals were prosecuted in this case.

• Citigroup (C), Barclays (BARC), JPMorgan Chase (JPM), Royal Bank of Scotland (RBS), and UBS AG (UBS) paid the DOJ $5.6B to resolve claims that their traders colluded together to rig exchange rates. As a result, the firms made billions of dollars while investors and clients suffered. While admissions of guilt were sought, no individuals were prosecuted. Also, the SEC gave the banks waivers so they wouldn’t have to deal with collateral damages from pleading guilty.

Wells Fargo Sued by Commerz Bank in Mortgage-Backed Securities Case

Published on: December 29, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Commerzbank is suing Wells Fargo (WFC) for losses sustained on failed mortgage-backed securities (MBS). The German finance firm claims the California lending giant did not properly supervise MBS during the housing bubble, which Commerzbank argues, led to hundreds of millions of dollars in losses.

Commerzbank alleges that Wells Fargo caused it over $100 million in losses because of Wells Fargo’s purported lack of action. The German firm invested over $290 million in MBSs and Wells Fargo was the trustee of 19 of the MBSs. A lot of the securities were backed by mortgages from subprime lender Option One.

The German bank believes that Wells Fargo and other trustees should have ensured that the loans backing the securities satisfied certain standards, notified investors when loans defaulted, and forced mortgage lenders to compensate investors for the poor quality loans. Instead, Wells Fargo did not do any of these actions.

US Continues Its Probe As Deutsche Bank Alleges $10B in Suspect Russia Trades

Published on: December 23, 2015 | by Shepherd Smith Edwards & Kantas, LLP

To date, Deutsche Bank AG (DB) says it has identified $10 billion in suspect trades that may not have been checked for money laundering. In the review, uncovered $6 billion of mirror trades involving its operations in Russia. According to a Russian central bank report, there are clients using rubles to purchase Russian shares and then selling them in London at the same time, usually for dollars. While mirror trades are legal in certain situations, they can be used to circumvent U.S. rules related to reporting money as it moves internationally. The German lender notified international authorities of its investigation a few months back.

According to Bloomberg, prosecutors in the United States have been investigating whether the bank’s dealings with the mirror trades violated U.S. rules regarding money laundering. Already, Russia’s central bank has fined Deutsche Bank after examining the latter’s trading in that country. Also, a source reportedly told Bloomberg that Russia’s regulator said that Deutsche Bank was the victim of an illegal scam and has since dealt with its related shortcomings.

The transactions under investigation include those involving trading in an account that was consistently involved in buy orders. In addition to the “mirror trades,” the investigation uncovered $4 billion of suspect trades that may have been conducted with another bank.

FINRA Cases: Deutsche Bank Fined $1.4M for Reg SHO and Short Interest Reporting Violations, Scottrade to Pay $2.6M for Email and Electronic Record Failures, and Cantone Capital Faces Fraud Charges

Published on: November 21, 2015 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Fines Deutsche Bank Securities $1.4M

The Financial Industry Regulatory Authority is fining Deutsche Bank Securities Inc. (DB) $1.4M for Regulation SHO violations, as well as for supervisory failures. According to the self-regulatory organization, for more than 10 years, the firm improperly included securities positions of a broker-dealer affiliate who isn’t from the US in a number of aggregation units. Deutsche Bank purportedly did this when trying to figure out the net position of each unit.

Under Reg SHO, firms can use an aggregation unit to track positions in security from certain trading operations or trading desks separate from other positions. However, to determine the aggregation unit’s net positions, firms are not allowed to use the securities positions of a non-US brokerage firm affiliate.

Also, FINRA mandates that firms—barring specific exemptions—regularly report total short positions in customer and proprietary firm accounts in equity securities. The positions have to be reported not on a net basis. Instead, they should be based on a gross basis. The SRO said that for more than eight years, Deutsche Bank reported net positions in its financial aggregation accounts, submitting those as its short interest position.

The SRO said that Deutsche Bank’s supervisory system as it relates to short interest reporting and its aggregation unit structure was not designed in a reasonable enough manner to identify and stop these rule violations. By settling, Deutsche Bank is not denying or admitting to the violation charges.

Scottrade Ordered to Pay $2.6M Fine for Electronic Records, Email Retention Failures

Scottrade, Inc. must pay a $2.6M fine to settle FINRA allegations accusing the firm of not keeping a lot of securities-related electronic records in the format mandated, which is known as WORM. Scottrade is also accused of not keeping specific categories in outgoing email and failing to have a supervisory system in place that could fulfill compliance related to certain FINRA and Securities and Exchange Commission rules regarding books and records.

10 Former Barclays and Deutsche Bank Traders Charged with Rigging Euribor

Published on: November 14, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Prosecutors in the United Kingdom have charged 10 former Barclays Plc (BARC) and Deutsche Bank AG (DEB) employees with rigging the Euribor benchmark. The ex-Deutsche Bank traders are Christian Bittar, Achim Kraemer, Joerg Vogt, Andreas Hauschild, Kai-Uwe Kappauf, and Ardalan Gharagozlou. The former Barclays traders are Philippe Moryoussef, Colin Bermingham, Sisse Bohart, and Carlo Palombo. An unidentified 11th trader is also expected to be charged.

Except for Bermingham, the rest of the defendants live outside Great Britain. These are the first charges in the Serious Fraud Office’s probe of Libor rigging involving the Euro interbank offered rate. More individuals are expected to be prosecuted.

Earlier this week, Bittar, who was once among Deutsche Bank’s most successful traders before he was let go in 2011, won a separate ruling. Although his name wasn’t mentioned in the Financial Conduct’s ruling in an interest rate benchmark’s manipulation probe into his former employer, Bittar contended that he was clearly identifiable in the details of the settlement. Bittar argued that because of this he was entitled to look at FCAs settlement with Deutsche Bank prior to its disclosure.

Global regulators had fined Deutsche Bank $2.5 billion earlier this year and the FCA published a document detailing the wrongdoing that included the term
“manager B” when referring to one of its managers. Bittar said that term clearly referred to him. A London judge said that Bittar was indeed improperly identified.

Securities News: Deutsche Bank to Pay $2.5M For Swaps Violations, Fifth Street Finance Sued in Class Action Lawsuit, and Countrywide’s $8.5B MBS Settlement Gets IRS Approval

Published on: October 23, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank Reaches Swaps Violation Settlement with CFTC
The Commodity Futures Trading Commission and Deutsche Bank AG (DB) have reached a settlement over the regulator’s order accusing the firm of not properly reporting its swaps transactions from 1/13 through 7/15. The regulator also said there were supervisory failures and that the bank failed to modify the reporting errors at issue until after it found out that the CFTC was conducting a probe.

According to the regulator, Deutche Bank did not properly report swap transaction cancellations in all asset classes, resulting in somewhere between tens of thousands and hundreds of thousands of reporting errors, violations, and oppositions in its reporting of swaps. CFTC believes that the bank knew about the problem but did not notify its Swap Data Repository in a timely manner, nor did it properly probe, deal with, and modify the information deficiencies until last year when it became aware of the investigation. As a result of the reporting failures, the wrong information was put out to the public.

The CFTC believes that the bank’s reporting failures were partly because of deficiencies in its swaps supervisory system. A more adequate system could have better supervised Deutsche Bank’s activities involving compliance with reporting requirements.

Because the bank is a provisionally registered Swap Dealer, it has to abide by certain recordkeeping, disclosure, and reporting duties related to swap transactions. These requirements are supposed to improve transparency, encourage standardization, and lower systemic risk in swaps trading.

Investors File Class Action Securities Case Against Fifth Street Finance
An investor has filed a class action securities fraud case against Fifth Street Finance Corp. on behalf of shareholders. According to the plaintiff, and for those who bought Fifth Street Finance common shares between 7/7/14 and 2/6/15, the company, Fifth Street Asset Management, Inc., and specific directors and officers violated federal securities laws by allegedly taking part in a fraudulent scam to artificially inflate Fifth Street Finance assets and investment income to raise revenue of Fifth Street Management.

Bank of America, Deutsche Bank, Citigroup, & Other Big Banks Settle $1.87B Settlement Over Swaps Price-Fixing Case

Published on: September 12, 2015 | by Shepherd Smith Edwards & Kantas, LLP

$1.87B securities settlement has been reached with 12 major banks. The case resolves investor claims that the financial firms conspired to rig prices to hold back competition in the credit default market. For now, the resolution is an agreement in principal and the parties have two weeks to work out the details before turning the deal over to U.S. District Judge Denise Cote in Manhattan for preliminary approval.

The defendants in this credit default case are:

· Bank of America Corp. (BAC)

· UBS AG (UBS)

· Goldman Sachs Group Inc., (GS)

· Barclays (BARC)

· Royal Bank of Scotland Group Plc (RBS)

· BNP Paribas SA (BNP)

· Morgan Stanley (MS)

· Citigroup (C)

· JPMorgan Chase (JPM)

· Credit Suisse Group AG (CS)

· Deutsche Bank AG (DB)

· HSBC Holdings Plc (HSBC)

Markit Ltd and the International Swaps and Derivatives Association are also defendants.

Ex-Deutsche Bank Employees May Face Libor Rigging Charges

Published on: July 11, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Bloomberg reports that according to sources, the U.S. Department of Justice is getting ready to file securities charges against former employees of Deutsche Bank AG (DB) for manipulating the London interbank offered rate. The government is looking at five ex-traders who may have rigged the U.S. dollar equivalent of the interest-rate benchmark. If the criminal charges do go through these would be the first ones against the German bank’s traders over Libor.

Earlier this year, Deutsche Bank agreed to pay $2.5B to regulators for rigging Libor and other benchmarks: $600M to the New York Department of Financial Services, $775M to the DOJ, $800M to the Commodities Futures Trading Commission, and $340M to the U.K’s Financial Conduct Authority. The latter had doubled its fine because of what it considered the bank’s “slow” and “ineffective response to questions and purportedly “false, inaccurate, or misleading” statement that it made.

The global settlement included a ban against Deutsche Bank’s traders who had engaged in interest rate rigging. The bank’s DB Group Services in the U.K. also pleaded guilty to one count of wire fraud for its involvement in the scam to defraud counterparties to interest rate swaps by manipulating U.S. Dollar LIBOR contributions.

BaFin Report Accuses Deutsche Bank Executives of Negligence in Libor Rigging

Published on: June 26, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to a report by German financial regulator BaFin, senior management at Deutsche Bank (DB) allegedly behaved “negligently” related to the rigging of Libor rates. The European regulator has been investigating the bank over its possible involvement in the manipulation of the inter-bank rate setting process.

The BaFin report contends that Deutsche Bank’s outgoing joint leader Anshu Jain may have lied to the European nation’s central bank, the Bundesbank, by purposely making inaccurate statements” about rate rigging during a 2012 interview. The regulator wants Deutsche Bank to be subject to special supervisory measures.

The Financial Times reports that, Jain, who resigned from his position and will officially step down at the end of the month, is accused of telling Bundesbank that he did not know about the rumors about possible rigging even though e-mails about a meeting on this matter were forwarded to him in 2008. Deutsche Bank, however, maintains that Jain did not lie or mislead the German central bank during the interview. The bank said that the BaFin report confirms its own findings that no current or ex-members of its Management Board or Group Executive Committee directed firm employees to rig intra-bank offered rate submissions or knew of any attempted manipulations before June 2011.

Deutsche Bank has paid over $9 billion in fines to resolve claims of Libor rigging. In April, the bank was fined $2.5 billion for manipulating interest-rate benchmarks.