Deutsche Bank Whistle-Blower Spurns $8 Million SEC Reward

Updated on
  • Eric Ben-Artzi complains that top executives went unpunished
  • Former Deutsche Bank risk officer writes opinion piece in FT

Deutsche Bank Whistle-Blower Spurns $8 Million Reward

A former Deutsche Bank AG risk officer said he was refusing an $8.25 million reward from the Securities and Exchange Commission for blowing the whistle on the lender overvaluing a derivatives portfolio, because of his concern that the SEC didn’t go after senior executives.

The $55 million fine that Deutsche Bank paid in a settlement announced by the SEC in May last year had penalized shareholders, while top executives retired with their multi-million dollar bonuses intact, Eric Ben-Artzi wrote in a Financial Times column published Friday.

Officials at Deutsche Bank declined to comment. A call and e-mail to BondIT in Israel, the company Ben-Artzi works for, went unanswered. A spokesman for Labaton Sucharow, a law firm which represented Ben-Artzi as a whistle-blower, declined to comment when contacted by Bloomberg.

“We brought all of the charges supported by the evidence and the law, which were unanimously approved by the commission,” said Andrew J. Ceresney, director of the SEC’s enforcement division.

The SEC said last year that Deutsche Bank misstated financial reports during the height of the global financial crisis, failing to take into account a material risk for potential losses estimated to be in the billions of dollars. The lender overvalued a portfolio of derivatives through which the bank purchased protection against credit default losses.

No ‘Looting’

Ben-Artzi, a mathematician who formerly worked for Goldman Sachs Group Inc., said he didn’t want his share of a $16.5 million payout because “I will not join the looting of the very people I was hired to protect.” He said his ex-wife and his lawyers had claims to a “portion” of the money, without being more specific.

Ben-Artzi sued Deutsche Bank for wrongful dismissal in 2012. All of the management board members who led the company at the time have since left.

Deutsche Bank Chief Executive Officer John Cryan has pledged to clean up the balance sheet and resolve major legal issues to help return the bank to profit. The bank has spent more than $10.5 billion on fines and legal settlements since the start of 2008, calculations by Bloomberg show. The company had 5.5 billion euros ($6.2 billion) of provisions for outstanding penalties at the end of June, according to its filings.

‘Robust Controls’

The SEC probe involved the cooperation of financial authorities in Germany and the U.K., the SEC said last May. Deutsche Bank neither admitted nor denied the findings, the bank and the SEC said at the time.

“At the height of the financial crisis, Deutsche Bank’s financial statements did not reflect the significant risk in these large, complex illiquid positions,” Ceresney said when the penalty was announced. “Deutsche Bank failed to make reasonable judgments when valuing its positions and lacked robust internal controls over financial reporting.”

Deutsche Bank said last year that the SEC acknowledged its cooperation throughout the investigation of the so-called leveraged super senior trades, and didn’t bring charges against individuals.

The SEC said the bank didn’t properly reflect the risk that the value of certain trades could exceed that of posted collateral. At no point did they do so, based on the terms of the Montreal Accord, a market-wide restructuring of LSS trades completed in January 2009, according to the bank.

— With assistance by Alfred Liu, and Nicholas Comfort

(Updates with SEC statement in fourth paragraph.)
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