Deutsche Bank

Deutsche Bank, UBS Are Probed Over Dark Pools & High-Frequency Trading, While An Investor Sue Barclays

Published on: July 30, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank AG (DB) and UBS AG (UBS) have disclosed that they are cooperating with regulators investigating dark pool trading venues and high frequency trading venues. Currently a number of banks are under investigation.

UBS says that among those probing its dark pool operation, which is consider the largest in the U.S. according to trade volume, are the Financial Industry Regulatory Authority, the U.S. Securities and Exchange Commission, and New York Attorney General Eric Schneiderman. The bank says it is one of many defendants named in related class action lawsuits over dark pool trading.

Meantime, Deutsche Bank also says that it too has gotten requests from certain regulators for data about high frequency trading. The bank’s dark pool is known as the SuperX European Broker Crossing System. Deutsche Bank is a defendant in a class action case claiming that high frequency trading may have violated U.S. securities laws.

Barclays and Deutsche Bank Under Scrutiny Over Barrier Options Transactions

Published on: July 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Senate Permanent Subcommittee on Investigations plans to conduct a hearing over what it believes are abusive transactions made by financial institutions. Bloomberg is reporting that Deutsche Bank AG (DBK), Barclays PLC (BARC), and hedge fund manager Renaissance Technologies LLC will have representatives testifying at the hearing.

The July 22 hearing is expected to focus on barrier options transactions between the banks and the hedge fund manager. There are tax benefits that allegedly came from the options, which the Internal Revenue Service and Renaissance are in dispute over.

Bloomberg reports that the transactions let the hedge fund manager’s Medallion fund borrow up to $17 for every dollar the fund owned, which is more than it could have in a traditional margin-lending relationship. Under Federal Reserve rules, stockbrokers are not allowed to lend over $1 for each client money dollar. Usually, hedge funds can borrow no more than $5 or $6 for each dollar it has and only if there is a special agreement with the banks.

Deutsche Bank, Wells Fargo, Citigroup Sued by Pimco and Blackrock Over Trustee Roles Involving Mortgage Bonds

Published on: July 3, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Pacific Investment Management Co. and BlackRock Inc. (BLK) are leading a group of investors, including Charles Schwab Co. (SCHW), Prudential Financial Inc. (PRU), DZ Bank AG, and Aegon in suing trust banks for losses they sustained related to over 2,000 mortgage bonds that were issued between 2004 and 2008. Defendants include units of US Bancorp (USB), Deutsche Bank AG (DBK), Wells Fargo (WFC), HSBC Holdings (HSBA.LN), Citigroup (C), and Bank of New York Mellon Corp (BK).

The investors are accusing the banks of breaching their duty as trustee when they did not force bond issuers and lenders to buy back loans that did not meet the standards that buyers were told the bonds possessed. It is a trustee’s job to make sure that principal payments and interest go to bond investors. They also need to make sure that mortgage servicing firms are abiding by the rules that oversee defective loans or homeowner defaults.

Trustees, however, have said that their duties are restricted to tasks like supervising the way payments are made to investors and giving regular reports about bond servicing. They disagree about having a wider oversight duty to fulfill.

Deutsche Bank AG Settles Shareholder Lawsuit Over Mortgage Debt

Published on: January 2, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank AG (DB) has settled a securities lawsuit filed by shareholders accusing the financial institution of misrepresenting the degree of risk it could manage related to mortgage debt before the financial crisis of 2008. The deal, of which the terms have not yet been revealed, were disclosed in a filing made by the firm’s lawyers in the U.S. District Court in Manhattan.

Shareholders, including two mutual funds and the Building Trades United Pension Trust Fund of Elm Grove, claim Deutsche Bank misled them about the management of risk and the underwriting on the mortgage debt that it put together and sold. They also contend that the firm was too slow to take write-downs. They believe that this resulted in an 87% decline in the bank’s share price between May 2007 and January 2009.

They also claim that Deutsche Bank maximized its profit at risk to investors, even as it failed to appraise these customers of the risks they were taking on. When the financial markets failed, it was investors that ended up paying the price.

Deutsche Bank to Pay $1.9B to FHFA Over Mortgage-Backed Securities Sold to Freddie Mac and Fannie Mae

Published on: December 26, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank (DB) will pay the Federal Housing Finance Agency $1.9 billion to settle securities claims that it misled Freddie Mac and Fannie Mae about the quality of loans bundled with mortgage-backed securities. Of the settlement, Fannie will get $300 million and Freddie will get $1.6 billion. However, this MBS settlement does not resolve a separate lawsuit filed by the two government-sponsored enterprises against Deutsche Bank and other firms over losses from the alleged manipulation interest rate.

FHFA claims that prior to the financial crisis, a number of financial institutions misled the two mortgage companies about borrowers’ creditworthiness. It wants to get back the $196 million Freddie and Fannie paid to buy what were supposed to be private label MBS.

The regulator says that losses sustained by Freddie and Fannie were from MBS that came from financial institutions selling flawed securities due to home loans in the bonds being more high risk than what the banks said they were. Although Freddie and Fannie didn’t make the loans directly they bought the mortgages from banks and sold them as securities to investors and provided guarantees. When the housing market exploded the two of them bought securities that were privately issued as investments. They also became two of the biggest bond investors. Unfortunately, when the economic crisis eventually hit in 2008, Freddie and Fannie suffered huge mortgage losses. The US Treasury had to lend them over $150 billion just so they could keep running.

Deutsche Bank, Royal Bank of Scotland Settle & Others for More than $2.3B with European Union Over Interbank Offered Rates

Published on: December 24, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank (DB) has announced that as part of a collective settlement, it will pay $992,329,000 to settle investigations involving interbank offered rates, including probes into the trading of Euro interest rate derivatives and interest rate derivatives for the Yen.

Also paying fines as part of the collective settlement are Royal Bank of Scotland Group Plc (RBS) which will pay $535,173,000 and Society General SA (SLE), which will pay $610,454,000, and three others. In total, the financial firms will pay a record $2.3 billion.

The fines are for manipulating the Euribor and the Yen London interbank offered rate. EU Competition Commissioner Joaquin Almunia said that regulators would continue to look into other cases linked to currency trading and Libor. Also related to these probes, Citigroup (C) has been fined $95,811,100, while JPMorgan (JPM) is paying $108M. Because of Citigroup’s cooperation into this matter, it avoided paying an additional $74.6 million. The two firms reportedly admitted that they were part of the Yen Libor financial derivatives cartel.

Fannie Mae Sues UBS, Bank of America, Credit Suisse, JPMorgan Chase, Citigroup, & Deutsche Bank, & Others for $800M Over Libor

Published on: December 14, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Fannie Mae is suing nine banks over their alleged collusion in manipulating interest rates involving the London Interbank Offered Rate. The defendants are Bank of America (BAC), JPMorgan Chase (JPM), Credit Suisse, UBS (UBS), Deutsche Bank (DB), Citigroup (C), Royal Bank of Scotland, Barclays, & Rabobank. The US government controlled-mortgage company wants over $800M in damages.

Regulators here and in Europe have been looking into claims that a lot of banks manipulated Libor and other rate benchmarks to up their profits or seem more financially fit than they actually were. In its securities fraud lawsuit, Fannie Mae contends that the defendants made representations and promises regarding Libor’s legitimacy that were “false” and that this caused the mortgage company to suffer losses in mortgages, swaps, mortgage securities, and other transactions. Fannie May believes that its losses in interest-rate swaps alone were about $332 million.

UBS, Barclays, Rabobank, and Royal Bank of Scotland have already paid over $3.6 billion in fines to settle with regulators and the US Department of Justice to settle similar allegations. The banks admitted that they lowballed their Libor quotes during the 2008 economic crisis so they would come off as more creditworthy and healthier. Individual traders and brokers have also been charged.

Bank of America, JPMorgan Chase Among Banks Sued by Danish Pension Funds in Credit Default Swaps Lawsuit

Published on: August 15, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In U.S. District Court for the Northern District of Illinois, Danish pension funds (and their investment manager) Unipension Fondsmaeglerselskab, MP Pension-Pensionskassen for Magistre & Psykologer, Arkitekternes Pensionskasse, and Pensionskassen for Jordbrugsakademikere & Dyrlaeger are suing 12 banks accusing them of conspiring to take charge of access and pricing in the credit derivatives markets. They are claiming antitrust violations while contending that the defendants acted unreasonably to hold back competitors in the credit default swaps market.

The funds believe that the harm suffered by investors as a result was “tens of billions of dollars” worth. They want monetary damages and injunctive relief.

According to the Danish pension funds’ credit default swaps case, the defendants inflated profits by taking control of intellectual property rights in the CDS market, blocking would-be exchanges’ entry, and limiting client access to credit-default-swaps prices, and

Cayman Islands LLC Must Replead CLO Securities Case Against Deutsche Bank

Published on: June 24, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Southern District of New York says that Arco Capital Corp. a Cayman Islands LLC, has 20 days to replead its $37M collateralized loan obligation against Deutsche Bank AG (DB) that accuses the latter of alleged misconduct related to a 2006 CLO. According to Judge Robert Sweet, even though Arco Capital did an adequate job of alleging a domestic transaction within the Supreme Court’s decision in Morrison v. National Australia Bank, its claims are time-barred, per the two-year post-discovery deadline and five-year statute of repose.

Deutsche Bank had offered investors the chance to obtain debt securities linked to portfolio of merging markets investments and derivative transactions it originated. CRAFT EM CLO, which is a Cayman Islands company created by the bank, effected the transaction and gained synthetic exposure via credit default transactions. For interest payment on the notes, investors consented to risk the principal due on them according to the reference portfolio. However, if a reference obligation, which had to satisfy certain eligibly requirements, defaulted in a way that the CDS agreements government, Deutsche Bank would receive payment that would directly lower the principal due on the notes when maturity was reached.

Arco maintains that the assets that experienced credit events did not meet the criteria. It noted that Deutsche Bank wasn’t supposed to use the transaction as a repository for lending assets that were distressed, toxic, or “poorly underwritten.”

Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud

Published on: April 19, 2013 | by Shepherd Smith Edwards & Kantas, LLP

A FINRA arbitration panel is ordering ex-broker Karl Hahn, who previously worked with Bank of America Corp’s (BAC) Merrill Lynch (MER), Oppenheimer & Co. (OPY), and Deutsche Bank AG’s (DB) Deutsche Bank Securities, to pay investor Chase Bailey $11 million because he sustained about $6 million in losses allegedly caused by securities fraud. Bailey contends that Hahn made excessive trades and misrepresented securities related to transactions involving a number of investments, including a variable annuity, approximately $2.3 million in fraudulent real estate financing involving East Coast properties, and covered calls.

In the filmmaker/Internet entrepreneur’s securities arbitration claim, Bailey named the three financial firms where Hahn previously worked. It is during this period that Bailey was allegedly defrauded. (He had moved his funds from one brokerage firm to the other each time Hahn was hired by that employer.) Bailey settled his case with Merrill for $700,000, while claims against Deutsche Bank and Oppenheimer were tossed out.

Per the FINRA arbitration ruling, Bailey is awarded $6.4 million in punitive damages and $4.1 million in compensatory damage. Ordering brokers to pay punitive damages is uncommon.