Sideways: Deutsche Bank – a whistleblower battles on
It has been over a month since Eric Ben-Artzi publicly declined his half share of a whistleblower award of $16.5 million for telling regulators about Deutsche Bank’s inflation of the value of a $98 billion credit derivatives portfolio during the financial crisis.
Ben-Artzi has still not heard from institutional investors, board members or regulators prepared to discuss his view that former executives at Deutsche should have bonus compensation clawed back to help pay for its enormous fines for malpractice, rather than simply adding each regulatory fine to the burden paid by all shareholders.
The silence is puzzling, given that Deutsche is facing a capital crisis due to uncertainty over whether or not it will be able to pay another approaching regulatory fine – a US penalty for mortgage securities abuses that could be as much as $14 billion.
Ben-Artzi disclosed his decision to turn down his share of a whistleblower award in an article in the Financial Times on August 18 in which he focused on the way top lawyers at Deutsche revolved in and out of jobs at the SEC, the regulator that ultimately fined the bank $55 million last year for the credit derivatives manipulation.
Ben-Artzi thinks that restitution should also be pursued from former senior executives who oversaw business lines.
“I can’t see why they wouldn’t be able to at least sue those executives,” Ben-Artzi said. “An attempt could at least be made to claw back some of the bonuses they made.”
The executives could include Anshu Jain, who was head of the global markets unit that was responsible for the credit derivatives portfolio when its value was inflated in 2008 and 2009; and Hugo Banziger, head of both risk management and legal affairs and compliance at the bank.
Banziger left Deutsche Bank in 2012 when Jain succeeded Josef Ackermann as co-CEO, while Jain was replaced by John Cryan last year.
Ben-Artzi, who was hired as a risk manager in Banziger’s group in 2010, was disappointed by Deutsche’s alleged stonewalling after he and other whistleblowers drew the attention of regulators to the credit derivatives manipulation in 2010 and 2011.
He was also unimpressed by attempts to convince outsiders that Deutsche was undertaking voluntary cultural change, including the actions of Colin Fan, who was head of credit at Deutsche when the credit derivatives valuation inflation took place.
Fan was promoted to co-head of investment banking in 2012, and in 2014 drew widespread attention when an internal video ‘leaked’ of him telling staff that he had lost patience with employees who fell short of the firm’s standards. Fan followed the leak of the video with an interview extolling his drive to promote “culture carriers” at Deutsche, which rang hollow after his departure in 2015 and the disclosure that he was under investigation for profits from a personal co-investment in credit derivatives trades designed to take risk off the bank’s books. He denies wrongdoing.
“Colin Fan is to me a very cynical person,” claimed Ben-Artzi.
Life as a whistleblower can feel isolated. Ben-Artzi still has not heard from the SEC how it intends to dispose of what is left of his share of the award after legal fees and a claim by his ex-wife are settled, for example.
Regulators are often as secretive and defensive as the people they supervise, and despite advertising how much it has paid out since launching a whistleblower programme in 2011, the SEC declined to provide any comment to Euromoney on the issues raised by Ben-Artzi’s case.
Ben-Artzi is now vice-president for risk analytics at online fixed income portfolio management firm BondIT, having moved from his former base in New York to Israel, so at least he is not forced to wait idly to find out if his principled stand eventually results in meaningful change. He says he just wants to put the whole saga behind him.