$8 Million SEC Reward Spurned by Deutsche Bank Whistle-Blower

Due to his concern that the SEC didn’t go after senior executives, an $8.25 million reward from the Securities and Exchange Commission for blowing the whistle on the lender overvaluing a derivatives portfolio is being refused by a former Deutsche Bank AG risk officer.

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

While an SEC spokesman didn’t immediately reply to requests for a comment, officials at Deutsche Bank declined to comment.

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

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”, said Ben-Artzi, a mathematician who formerly worked for Goldman Sachs Group Inc. Without being more specific, he said his ex-wife and his lawyers had claims to a “portion” of the money.

In 2012, Deutsche Bank was sued for wrongful dismissal by Ben-Artzi. However, all of the management board members who led the company at the time have since left.

Resolving major legal issues to help return the bank to profit and cleaning up the balance sheet have been pledged by Deutsche Bank Chief Executive Officer John Cryan. Calculations show that since the start of 2008, more than $10.5 billion on fines and legal settlements have been spent by the bank. According to its filings, at the end of June, 5.5 billion euros ($6.2 billion) of provisions for outstanding penalties had been provided by the company.

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

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

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

The risk that the value of certain trades could exceed that of posted collateral hadn’t been properly reflected by the bank, the SEC said.

(Adapted from Reuters)


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