Dr. Eric Ben-Artzi has been talking to the Securities and Exchange Commission and has blown the whistle on alleged multi-billion dollar securities violations at Deutsche Bank, the Germany-based global investment bank. Dr. Ben-Artzi, a former quantitative risk analyst at Deutsche Bank, first reported the violations internally in accordance with bank policies and procedures. Apparently, he got nowhere even though his reporting was extensive. Since the problem was neither acknowledged nor corrected, Dr. Ben-Artzi informed the proper law enforcement authorities. Apparently, the man and his family are now “paying a heavy price for doing the right thing,” and that’s most unfortunate.
Dr. Ben-Artzi discovered and internally reported possible securities violations stemming from Deutsche Bank’s failure to accurately report the value of its credit derivatives portfolio. The bank, according to Dr. Ben-Artzi, failed to properly value the gap option component in its portfolio of Leveraged Super Senior (LSS) tranches of credit derivatives. The gap option is the difference between the collateral paid by the LSS note buyer and the mark-to-market expected loss that the LSS note seller agreed to cover.
With a $120-$130 billion portfolio in notional value, Deutsche Bank was the largest holder of LSS trades in the marketplace. By not accurately valuing the LSS portfolio, the bank was able to maintain its carefully crafted public image that it was weathering the financial crisis better than its peers – many of which required financial assistance from the government and experienced significant deterioration in their stock prices. Even using conservative assumptions, if the LSS portfolio had been properly valued, the bank would have substantially missed its earnings estimates.
Troubled by the bank’s unwillingness to acknowledge and appropriately address this significant valuation problem, Dr. Ben-Artzi sought legal representation and then reported the possible securities violations to the SEC’s Whistleblower Program. The program, established by the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010, has broad international reach and offers eligible whistleblowers significant employment protections, monetary awards and the ability to report anonymously. Jordan Thomas, a former SEC Assistant Director and chair of the Whistleblower Representation Practice at Labaton Sucharow, had this to say:
When Dr. Ben-Artzi first consulted with me, I was shocked by the size and scope of the alleged misconduct. This is exactly the type of significant and unreported securities violations that the SEC Whistleblower Program was intended to address. It is one of many high-profile matters in the pipeline.
Dr. Ben-Artzi repeatedly attempted to work through internal reporting channels, at increasingly higher levels, to correct the valuation problem. It was alleged in his retaliation complaint, filed with the Department of Labor, that when he pressed his concerns further he was subjected to severe hostility, isolated, denied access to records necessary to perform his job, lost his job independence and was stripped of responsibilities. In November 2011, shortly after returning from paternity leave, Deutsche Bank informed Dr. Ben-Artzi that his position had been moved to Europe and laid him off without warning. He lost the chance to move with his job, and was not offered a real opportunity to find a new position within the financial institution.
Dr. Ben-Artzi had received favorable performance reviews, and when laid off, was being recruited to work in other groups within the bank due to his professional expertise and reputation. In his retaliation case, Dr. Ben-Artzi alleged violations of the whistleblower protection provisions contained within the Sarbanes-Oxley Act. His lawyer Tom Devine said:
This is a classic illustration of what whistleblowers risk when trying to work within the system at firms acting in bad faith. Dr. Ben-Artzi was a model corporate citizen who discovered SEC violations that could incur serious liability, and stuck his neck out internally to warn bank management. Deutsche Bank’s response was to personally harass him, and fire him as soon as it pinned down what he knew. The retaliation was crude, and not camouflaged. Quite clearly, the point was to scare other would-be whistleblowers into silence. The lesson learned is that working within Deutsche Bank’s corporate compliance and reporting system is an act of professional suicide.
This case is a prime example of why whistleblowers, who perform badly-needed protections for corporate shareholders and also for taxpayers, must be protected from retaliation by their employers.
Source: Corporate Crime Reporter
Contact us today for a free legal consultation with an experienced attorney.
Fields marked *may be required for submission.
If you would like to subscribe to the Jere Beasley Report digital edition, simply visit our Subscriptions page and provide the necessary information or call us at 800-898-2034.
Attorney Advertising - Prior results do not guarantee a similar outcome.