Private detectives start digging for dirt in Moscow for Deutsche Bank class action

Private detectives start digging for dirt in Moscow for Deutsche Bank class action
German lender comes under new scrutiny over alleged $6bn trading fraud.
By Jason Corcoran in Moscow November 7, 2016

Private detectives are approaching former Deutsche Bank employees in Moscow to talk about an alleged $6bn trading fraud as part of a class action being taken by shareholders of the stricken German bank, bne IntelliNews can reveal.

Chris Szechenyi, a private investigator with On Point Investigations, contacted this journalist about working on the case and talking to former Deutsche Bank employees for the law firm Pomerantz. Szechenyi also asked this journalist to recommend private investigators in Moscow who speak fluent Russia and English to work with them on the case.

A former journalist, Szechenyi, is the founder and president of  Boston-based On Point and has 15 years of experience as a private eye working on cases for law firms. His website claims that he interviewed one of Osama bin Laden’s brothers after 9/11 as well as Nelson Mandela, the former South African leader.

“Dish the dirt”

One former employee at Deutsche Bank told bne IntelliNews that he had been contacted to “dish the dirt” on the bank and how management were “more cognizant” of the alleged trading fraud from its inception than they have let on.

Pomerantz is famous, or notorious, for bringing lucrative class action lawsuits against high-profile companies. One of its senior lawyers is counsel to the lead plaintiffs in the securities fraud class action against Brazilian oil giant Petrobras that centres on claims that a long-running kickback scheme triggered a mass drop in its share price. Another partner is leading the BP securities litigation on behalf of dozens of US and foreign investors that suffered losses when shares dived after the 2010 Gulf of Mexico oil spill.

A spokesperson for Deutsche Bank in Moscow told bne IntelliNews the lender would not comment on the case.

The class action is on behalf of all persons or entities who acquired Deutsche Bank securities between April 15, 2013 and April 29, 2016. As revelations appeared in the Financial Times, the Wall Street Journal and newswires, Deutsche Bank’s shares tanked during that timeframe.

Deutsche Bank is accused of misleading investors by not disclosing problems with internal controls that failed to catch an alleged $6bn Russian money-laundering scheme carried out through so-called mirror trades.

The complaint by Pomerantz alleges Deutsche “made false and/or misleading statements and/or failed to disclose that Deutsche Bank has serious and systemic failings in its controls against financing terrorism, money laundering, aiding against international sanctions, and committing financial crimes”.

The lender’s internal control over financial reporting and its disclosure controls and procedures were not effective and, as a result, public statements were “materially false and misleading at all relevant times”, according to Pomerantz.

Red flags ignored

It emerged in April that the Frankfurt-based bank ignored its own red flags for possible money laundering after its own probe discovered “systemic” failure in its Russian trading activities.

Critical deficiencies, as the bank referred to them, allowed a “suspected money-laundering pattern” to channel as much as $10bn out of Russia from 2012 through 2014, it said in a report.

Deutsche Bank hiked its litigation reserves by $1.3bn in the third quarter mainly to cover alleged violations at the lender’s Russian unit.

A Russian investigation found no significant abuse of anti-laundering controls connected with so-called mirror trades between Moscow and London, and fined Deutsche Bank a nominal amount for largely technical shortcomings, Bloomberg reported.

But the impartiality of Russian probes has long been questioned. By contrast, the German lender can expect far harsher treatment from US and UK market watchdogs, which in the last four years haven’t hesitated to slap huge penalties on major investment banks. Sources close to Deutsche Bank’s Moscow probe said they expect the resultant fines to run into the billions of dollars.

In the wake of the scandal, Deutsche took the decision to close its investment bank in Moscow in September last year as US and European regulators turned the heat up into mirror trading’, which may have enabled the lender’s clients to shift money offshore without alerting the relevant authorities over a period of four years.

Deustche Bank admitted in October it had discovered abuses of internal policies during an investigation. Tim Wiswell, the bank’s head of Russian equities, lost his job last year after 12 years at the lender amid the probe. He has denied any wrongdoing.

Some of the first warnings were ignored and others were dismissed. It wasn’t until early 2015, when Russian authorities began interviewing bank employees in Moscow, that senior executives in Frankfurt were alerted and the bank began a full-scale internal probe.

According to Bloomberg, some funds that were moved out of Russia belonged to close associates of President Vladimir Putin, including an unnamed relative of the Russian leader and two of his longtime friends, Arkady and Boris Rotenberg.

Banking insiders told bne IntelliNews that Deutsche Bank was forced to shut down the  Moscow business after the Central Bank of Russia threatened to revoke its main banking license amid the furore over allegations. Only the intervention by a senior German politician, believed to be Finance Minister Wolfgang Schaeuble, and a pledge to wind down the operation averted that course of action, according to a senior Moscow banker familiar with the central bank’s dealings. Deutsche Bank rejected this version as untrue after it was reported.