Deutsche Bank Pays $1.6 Million to End U.S. Trading Probe
Deutsche Bank AG (DBK) agreed to pay $1.6 million to end a dispute with the U.S., backing away from a showdown with the Federal Energy Regulatory Commission that said a unit of the bank manipulated California’s power markets.
The bank within 10 days will pay the U.S. a civil penalty of $1.5 million and surrender $172,645 plus interest to California’s grid operator, the agency said today in a statement. The penalties are similar to FERC’s proposed remedy last year after accusing the bank of trading violations in 2010.
The settlement ends a dispute that Frankfurt-based Deutsche Bank had said would test the FERC’s enforcement powers, enhanced by Congress in 2005 following trading violations by other companies. Since January 2011, the agency has disclosed 13 probes of market manipulation, including at the trading units of Barclays Plc (BARC) and JPMorgan Chase & Co. (JPM)
Deutsche Bank decided to settle rather than fight, Susan Court, a former director of the agency’s enforcement office, said in an interview. “You have to take into consideration the size of the penalty versus the cost of litigating.”
The FERC on Sept. 5 proposed that Deutsche Bank Energy Trading LLC pay a $1.5 million civil penalty and give up $123,198 in profits, plus interest, for allegedly gaming power markets in early 2010. The allegations were disputed by the unit, which is part of a financial-services company that reported $33.2 billion in net revenue through the first nine months of 2012. Deutsche Bank no longer has energy-trading operations in California, Calabro said.
In a Nov. 5 filing with the FERC, lawyers for the Deutsche Bank trading unit said the company was prepared to challenge the regulator’s accusations in court, even though “the cost of defending the case is likely to exceed the amount” sought by the agency.
FERC’s charge was “radical,” and the company would oppose it on a “point of principle” that had implications for the entire industry, the lawyers said.
In the end, Deutsche Bank abandoned its fight over the proposed penalties.
The company “neither admits nor denies the violations,” the FERC said in its order announcing the settlement. The amount of profits the company will hand over is about $49,000 more than the amount FERC originally suggested to “further analysis” since the proposed penalties in September, according to the document.
In the agreement, Deutsche Bank must implement “enhanced compliance measures and procedures,” including improved training for traders and managers and semi-annual compliance monitoring reports, the agency said in its statement.
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