Ex-Deutsche Bank Trader Zhou Admitted to Mismarking CMBS Trades

  • Zhou resigned after disclosing his actions, Finra records show
  • Bank probe into Zhou's conduct is ongoing, according to filing

Former Deutsche Bank AG trader Arnie Zhou admitted to his supervisor at the bank that he was responsible for inaccurate valuations tied to bonds backed by commercial mortgages, according to a regulatory filing.

Zhou resigned Nov. 2 after Deutsche Bank questioned the authenticity of documents he gave to the bank’s internal valuation department, according to a filing with the Financial Industry Regulatory Authority. The bank reported the former trader to the U.S. Securities and Exchange Commission following an internal investigation, people with knowledge of the matter told Bloomberg News in November.

Seth Levine, Zhou’s lawyer, declined to comment. Deutsche Bank spokeswoman Amanda Williams also declined to comment.

Trading in mortgage-backed securities and other securitized debt has come under increasing scrutiny after the U.S. convicted former Jefferies Group LLC bond trader Jesse Litvak of securities fraud for misleading clients about how much he was making on bonds he was selling. That conviction was overturned in December and Litvak is set to be retried starting in July.

Problematic Transactions

The SEC is using algorithms to comb through bond trading and has found billions of dollars worth of problematic transactions, according to Mike Osnato, head of the complex financial instruments unit in the regulator’s enforcement division.

Zhou had co-run Deutsche Bank’s CMBS trading group in the U.S. in 2014. He joined the bank in 2012 and had previously worked at Bank of America Corp. and Lehman Brothers Holdings Inc., according to Finra records. The debt he assigned inaccurate valuations to was previously held on Deutsche Bank’s books, the Finra filing shows.

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