Deutsche Bank Sued for Billions Over Fund’s Currency Losses

Deutsche Bank AG faces a claim that may be worth billions of dollars in a lawsuit with investment fund Sebastian Holdings Inc. over failed foreign exchange transactions.

Sebastian said in court papers in London that Germany’s largest bank allowed a trader to breach currency-trading limits between 2006 and 2008. Sebastian, owned and run by Norwegian investor Alexander Vik, said it suffered losses and missed out on profits worth about $2.5 billion when it had to meet margin calls and close out positions because of the dispute.

“This is about a margin call that was missed and remains unpaid,” Deutsche Bank said in an e-mailed statement. “We will defend vigorously against the other party’s claims which are without merit and date to 2008.”

Deutsche Bank is pursuing Sebastian in the U.K. courts for $245 million in unpaid margin calls from the period. Sebastian has filed a “substantial” counterclaim valued at several billion dollars, its lawyer, Tim Lord, said at a pre-trial hearing in London on Nov. 21.

“The bank is marshalling armies of lawyers to sue Sebastian Holdings,” Lord said at the November hearing.

The dispute relates to “exotic derivatives” and the breakdown of prime brokerage services provided by Deutsche Bank, Lord said in November. Sebastian was seeking additional documents from Deutsche Bank’s Swiss unit ahead of a trial in London.

‘Plain Vanilla’

The unauthorized trades were carried out by Klaus Said, whom Vik authorized to work on behalf of Sebastian, the fund’s lawyers said in London filings. He was only permitted to deal in “plain vanilla” currency, within a strict limit of $35 million. Deutsche Bank was aware of these limits and shouldn’t have allowed Said to trade in derivatives, Sebastian says.

Said declined to comment when reached by phone at his home in Connecticut.

Sebastian, based in the Turks and Caicos, is also suing Deutsche Bank for $750 million in New York, alleging breach of fiduciary duty, unjust enrichment and negligent misrepresentation, according to court documents in the case.

As well as losses of $750 million from the foreign exchange trades, Sebastian estimates in the U.K. counterclaim that it has missed out on profits of about $700 million from having to close currency, gold and futures positions as well as losing a $1 billion capital fund it held with the bank.

Vik “trusted and relied upon” his private bankers at Deutsche Bank for management of Sebastian’s finances, according to the claim.

London Counterclaim

Sebastian’s London counterclaim was filed in March. The German lender filed its lawsuit in January 2009. Jonathan Leslie, Sebastian’s attorney, didn’t respond to calls and e-mails requesting comment.

Deutsche Bank claims Sebastian didn’t meet a margin call of about $125 million in October 2008, according to arguments filed in London. When Sebastian withdrew almost $300 million from the bank, Deutsche Bank treated the situation as a default and terminated its agreement with the fund, the bank said.

Sebastian in 2006 attempted to break up French media company Vivendi SA. In an interview at the time, Vik said that he operated his fund from Monaco, dividing his time between the principality and a mansion in Greenwich, Connecticut. He is chairman and chief executive officer of Cayman Islands-based Xcelera, according to the technology investment firm’s website.

Vik didn’t respond to a phone call and e-mail to Xcelera requesting comment.

The case is: Deutsche Bank AG v. Sebastian Holdings Inc, 09-83, High Court of Justice, Queen’s Bench Division, Commercial Court

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