Articles Posted in Deutsche Bank

The U.S. Commodity Futures Trading Commission has filed a civil case against Deutsche Bank AG (DB). According to the regulator, for five days the firm, which is a provisionally registered Swap Dealer, did not report any swap data for a number of asset classes, turned in untimely and unfinished swap information, failed to supervise the staff responsible for the reporting of the swap data, and had an inadequate Business and Continuity and Disaster Recovery Plan.

The bank’s swap data reporting system had suffered a System Outage. The CFTC said that the swap data reported prior to and after the outage showed that there had been ongoing problems with specific data fields and their integrity. As a result, the market data issued to the public was affected. Some of it purportedly continues to be affected to this day. The CFTC said that a reason for the System Outage and the reporting problems is that Deutsche Bank lacked an adequate Business Continuity and Disaster Recovery Plan or another supervisory system that was equally satisfactory.

Earlier this month, the Financial Industry Regulatory Authority fined Deutsche Bank $12.5M for substantive supervisory failures involving trading-related information and research that the firm had issued to employees over internal speakers, also referred to as squawk boxes. The self-regulatory organization said that even though there were red flags related to this matter, Deutsche Bank neglected to set up supervision that was adequate over both the access that registered representatives had to the “squawk,” or “hoots,” which is the information issue through the squawk boxes, and the communication of this data to customers.

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Investment Advisor Firm Accused of Paying Off Terminally Ill Patients to Commit Fraud
The SEC has filed fraud charges against Donald Lathen and his Eden Arc Capital Management. Lathen is accused of recruiting at least 60 individuals who had less than six months to live and agreeing to pay them $10K each for the use of their names on joint brokerage accounts. When one of these individuals would die, he would allegedly redeem the investments by falsely representing that he and the terminally individual person were joint account holders.

Lathen recruited the terminally ill patients through contacts he had at hospices and nursing homes. In reality, it was Lathen’s hedge fund that owned the option investments.

As a result, of the purported omissions and misrepresentations, issuers paid over $100M in early redemptions. Lathen is accused of violating the custody rule by not properly putting the securities and money from the hedge fund in an account under the name of the fund or in one that held only client money and securities.

SEC Stops Trading in Neromamam Ltd.
The SEC has stopped the trading of Neuromama Ltd. (NERO) shares. The shares trade on the mostly unregulated over-the-counter markets and the regulator is concerned about transactions that may be “potentially manipulative, as well as other red flags that have purportedly been cropping up for years.

Neruomama’s paper value went up times four to $35B this year despite not much volume. The company’s shares went up by four times to $56/share. (On January 15, ’14, its value was $4.73B.)

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Deutsche Bank AG (DB) has settled a private lawsuit accusing the German bank of manipulating silver futures prices. The terms of the payment amount were not disclosed.

It was in 2014 that silver futures trades sued Deutsche Bank (DB), Bank of Nova Scotia (BNS), and HSBC Holdings Plc (HSBC), accusing the firms of unlawfully manipulating the price of metal and its derivatives. They claimed that the banks, which are the largest silver bullion banks in the world, abused their power so they could dictate the price of silver. The banks would hold secret meetings daily and allegedly manipulate the price so they could illegitimately profit during trading. Meantime, other investors utilizing the silver benchmark in billions of dollars of transactions purportedly were harmed.

Deutsche Bank has admitted to manipulating gold and silver prices. It promised to provide any evidence it might have about other banks’ and their involvement, including electronic communications.

Claims have previously brought against financial firms over alleged gold price rigging. In 2014, Barclays Plc (BARC) was fined $43.8M for internal control failures that let a trader rig gold prices.

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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.

Deutsche Bank Securities Inc. has consented to pay $17.5 million to the state of Massachusetts to settle allegations by that it did not disclose conflicts of interest involving collateralized debt obligation-related activities leading up to the financial crisis. Secretary of the Commonwealth William Galvin also is accusing the firm of inadequately supervising employees that knew about the conflicts but did not disclose them. DBSI, a Deutsche Bank AG (DB) subsidiary, has agreed to cease and desist from violating state securities law in the future.

In particular, the subsidiary allegedly kept secret its relationship with Magnetar Capital LLC. Galvin claims that DBSI proposed, structured, and invested in a $1.6 billion CDO with the Illinois hedge fund, which was shorting some of the securities’ assets. In total, Deutsche Bank Securities and Magnetar are said to have invested in several CDOs worth approximately $10 million combined.

The state of Massachusetts’s case focused on Carina CDO Ltd., of which Magnetar was the sponsor that invested in the security’s equity and shorted the assets that were BBB-rated. Ratings agencies would go on to downgrade the collateralized debt obligation to junk. Galvin contends that it was Deutsche Bank’s job to tell investors what Magnetar was doing rather than keeping this information secret.

Last week, a whistleblower lawsuit claiming that taxpayers were defrauded when the federal government bailed out American International Group was unsealed. The complaint accuses the Houston-based AIG and two banks of taking part in speculative and fraudulent transactions that resulted in losses worth billions of dollars. They then allegedly convinced the Federal Reserve Bank of New York to bail them out with two rescue loans for AIG that were used to unwind hundreds of failed loans.

The complaint focuses on the two emergency loans of about $44 billion that AIG received in October 2008 (The remaining $138 that it got in bailout funds are not part of this case). The money went toward settling trades involving complex, mortgage-linked securities. Some of the AIG-guaranteed securities were underwritten by Goldman Sachs and Deutsche Bank. Both financial institutions join AIG as defendants in this case. The two loans were extended to buy the troubled securities and place them in Maiden Lane II and Maiden Lane III, both special-purpose vehicles, until AIG’s crisis subsided.

The plaintiffs, veteran political activists Nancy and Derek Casady, contend that the rescue loans were improper because the government made them without obtaining a pledge of high-quality collateral from AIG. They maintain that the Fed board does not have the authority to “cover losses of those engaged in fraudulent financial transactions.”

Their whistleblower lawsuit was filed under the False Claims Act. This federal law lets private citizens sue on behalf of government agencies if they know of a fraud that occurred. Plaintiffs are able to attempt to recover money for the government and its taxpayers. Plaintiffs usually receive a percentage if their claim succeeds.

According to the New York Times, senior fed officials have admitted to taking unusual actions in 2008 because the global financial system was on the verge of falling apart.

Related Web Resources:
Claiming Fraud in A.I.G. Bailout, Whistle-Blower Lawsuit Names 3 Companies, The New York Times, May 4, 2011
False Claims Act, Cornell University Law School

Related Web Resources:
Texas Commodity Trading Advisor FIN FX LLC Now Subject to NFA Emergency Enforcement Action, Stockbroker Fraud Blog, April 27, 2011
Texas Securities Fraud: FINRA Suspends Pinnacle Partners Over Failure to Comply with Temporary Cease and Desist Order Involving “Boiler Room” Operation, Stockbroker Fraud Blog, April 19, 2011
SEC is Finalizing Its Whistleblower Rules, Says Chairman Schapiro, Stockbroker Fraud Blog, April 28, 2011 Continue reading

The Financial Industry Regulatory Authority says that Deutsche Bank Securities and National Financial Services LLC have consented to be fined $925,000 in total for supervisory violations, as well as Regulation SHO short sale restrictions violations. By agreeing to settle, the broker-dealers are not denying or admitting to the charges.

FINRA claims that the two investment firms used Direct Market Access order sytems to facilitate client execution of short sales and that they violated the Reg SHO “locate” requirement, which the Securities and Exchange Commission adopted in 2004 to discourage “naked” short selling. FINRA says that while the two broker-dealers put into effect DMA trading systems that were supposed to block short sale order executions unless a locate was documented, the two investment banks submitted short sale orders that lacked evidence of these locates.

FINRA says that during the occasional outages in Deutsche Bank’s systems, short sale orders were automatically rejected even though a valid documented locate had been obtained. This is when the the investment bank would disable the automatic block in its system, which allowed client short sales to automatically go through without first confirming that there were associated locates.

As for NFS, FINRA contends that the investment bank set up a separate locate request and approval process for 12 prime clients that preferred to get locates in multiple securities prior to the start of trading day. With this separate system, the requests and approvals for the numerous locates did not have to be submitted through the firm’s stock loan system at approval time. Instead, the clients could enter and execute orders through automated platforms that lacked the capacity to automatically block short sale order executions that didn’t have proper, documented locates.

Related Web Resources:
FINRA Fines Deutsche Bank Securities, National Financial Services a Total of $925,000 for Systemic Short Sale Violations, FINRA, May 13, 2010
Regulation SHO, Nasdaq Trader Continue reading

Citigroup Global Markets, Deutsche Bank Securities, and UBS Securities have agreed to pay fines for Financial Industry Regulatory Authority sanctions over their handling of Vonage LLC stock’s initial public offering in 2006. FINRA says that the firms’ failure to adequately supervise communications with customers cost investors hundreds of thousands of dollars. By agreeing to settle, none of the broker-dealers are agreeing to or denying wrongdoing.

The three firms acted as the Vonage offering’s lead underwriters. A “directed share program” was included. Clients used accounts with the broker-dealers to purchase about 4.2 million shares.

An external company designed and administered a Web site for DSP participants that the firms’ clients used to communicate about the IPO. According to the SRO, however, inadequate supervision and the failure to follow procedures regarding outside sourcing and directed share programs resulted in the broker-dealers being unable to respond appropriately or take effective action when certain clients obtained misinformation about their orders.

By the time customers were finally notified that shares were allocated to them, the Vonage stock price had dropped significantly compared to the offering price. In addition to paying the higher price, investors sustained financial losses when the stocks were sold.

UBS, Citigroup, and Deutsche Bank have agreed to fines totaling $845,000. UBS will pay a $150,000 fine and a maximum of $118,000 to 26 clients who are potentially eligible. In addition to its $175,000 fine, Citigroup will pay 284 potentially eligible customers a maximum of $250,000. Deutsche Bank will pay 59 potentially eligible clients a maximum of $52,000, plus its $100,000. Customers are to be compensated the difference between Vonage stock’s price when clients found out they had been allocated shares and the $17/share IPO price that they paid.

Related Web Resources:
FINRA Fines Citigroup Global Markets, UBS and Deutsche Bank $425,000, Orders Customer Restitution for Supervisory Failures in Vonage IPO, FINRA, September 22, 2009
Citi, UBS, Deutsche Fined Over Vonage IPO
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The Boilermaker-Blacksmith National Pension Trust is suing a number of investment banks, credit rating agencies, and underwriters, including Wells Fargo, WFASC, Morgan Stanley & Co., Credit Suisse Securities (USA) LLC, Barclays Capital Inc., Bear Stearns & Co., Countrywide Securities Corp., Deutsche Bank Securities Inc., JPMorgan Chase Inc., Bank of America Corp., Citigroup Global Markets Inc., McGraw-Hill Cos., Moody’s Investor Services Inc., and Fitch Ratings Inc., over allegations that they made false statements in the prospectus and registration statement for certificates that were collateralized by Wells Fargo Bank, NA. The lawsuit, filed on behalf of thousands of investors that bought the certificates from Wells Fargo Asset Securities Corp., accuses the defendants of violating the 1933 Securities Act by engaging in these alleged actions.

According to the securities fraud lawsuit, the defendants concealed from investors that Wells Fargo revised its underwriting practices in 2005 and became involved in high risk subprime mortgage lending. The complaint contends that WFASC and a number of defendants submitted to the Securities and Exchange Commision prospectus and registration statements representing that the mortgages were backed by certificates that were subject to specific underwriting guidelines for evaluating a borrower’s creditworthiness. The plaintiffs contend that these prospectuses and registration statements were false because they neglected to reveal that the Wells Fargo-originated certificates were not in accordance with the credit, underwriting, and appraisal standards that Wells Fargo, per the companies, had supposedly used to approve mortgages.

The lawsuit also claims that because Wells Fargo decided to enter the subprime mortgage mortgage market in 2005, the investment bank had to take significant write-downs in 2008 because of its massive exposure to the subprime market and the WFASC certificates that these mortgages backed dropped significantly in value. The Boiler-Blaksmith fund reports that it lost about $5 million, which is more than half of what it invested.

Related Web Resources:
Read the Complaint

The Boilermakers National Funds
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The North American Securities Administrators Association is reminding investors to ask the investment firms that sold them any now-frozen auction-rate securities about repurchase opportunities. Following the ARS market collapse, securities regulators in 12 US states joined together to form a multi-state Task Force dedicated to finding out whether Wall Street investment firms had misled investors when persuading them to invest in the ARS market.

As part of their settlement agreements reached with the firms in question, 11 major Wall Street investment banks have said they will buy back over $51 billion in ARS from charities, retail investors, and small companies. However, these repurchase offers may not be available indefinitely.

NASAA President Fred Joseph says the best way to avail of any redemption offers is to contact the investment firms as soon as possible. So far, 11 firms have agreed in principle to buy back over $50 billion in ARS. NASAA says additional repurchase opportunities are expected to become available in the coming months.

Investment Firms with ARS Hotlines:

Bank of America 1-866-638-4183 Deutsche Bank 1-866-926-1437 Citi 1-866-720-4802 JP Morgan 1-866-450-8470 Goldman Sachs 1-888-350-2857 Merrill Lynch 1-888-706-1381 UBS 1-800-253-1974 Morgan Stanley 1-800-566-2273 Wachovia 1-866-283-794
Meantime, more investigations are under way into the sales practices of US firms that marketed and sold auction-rate securities to investors. Unfortunately, many investors who were told ARS were liquid investments are now dealing with frozen securities and cannot access their funds.

If you invested in the auction-rate securities industry and your ARS became frozen during the market’s collapse, you may be the victim of securities fraud.

Related Web Resources:
State Securities Regulators Remind Auction Rate Securities Investors to Contact Firms About Buyback Offers, NASAA, November 17, 2008
Small firms caught in ARS buyback vise, November 16, 2008 Continue reading