Securities Industry Commentator by Bill Singer Esq

Voya Racial Discrimination Case Sheds Harsh Light On Wall Street Mandatory Arbitration (BrokeAndBroker.com Blog)

Deutsche Bank Agrees to Pay Over $130 Million to Resolve Foreign Corrupt Practices Act and Fraud Case (DOJ Release)

SEC Charges Deutsche Bank With FCPA Violations Related to Third-Party Intermediaries (SEC Release)

SEC charges Utah Company, its Principals, and Two Recidivists with Securities Fraud (SEC Release)

FINRA Fines and Suspends Rep for Creating Backdated OBA Documents

In the Matter of Donald Robert Pollard, Respondent (FINRA AWC)

The FCPA Case

According to admissions and court documents, between 2009 and 2016, Deutsche Bank, acting through its employees and agents, including managing directors and high-level regional executives, knowingly and willfully conspired to maintain false books, records, and accounts to conceal, among other things, payments to a business development consultant (BDC) who was acting as a proxy for a foreign official and payments to a BDC that were actually bribes paid to a decisionmaker for a client in order to obtain lucrative business for the bank. In some instances, Deutsche Bank made payments to BDCs that were not supported by invoices or evidence of any services provided. In other cases, Deutsche Bank employees created or helped BDC's create false justifications for payments.      

In relation to a Saudi BDC, Deutsche Bank admitted that its employees conspired to contract with a company owned by the wife of a client decision maker to facilitate bribe payments of over $1 million to the decision maker. Deutsche Bank approved the BDC relationship despite Deutsche Bank employees knowing about the relationship between the Saudi BDC and the decision maker, and approved the corrupt payments despite Deutsche Bank employees openly discussing the need to pay the Saudi BDC in order to incentivize her husband to continue to do business with Deutsche Bank.  In requesting approval of one payment, Deutsche Bank employees cautioned that the "client and [the Saudi BDC] are intimately linked and . . . any cessation of payment to the [the Saudi BDC] will certainly prompt a significant outflow of [business]" from the client.

Deutsche Bank also contracted with an Abu Dhabi BDC to obtain a lucrative transaction, despite Deutsche Bank employees knowing that the Abu Dhabi BDC lacked qualifications as a BDC, other than his family relationship with the client decision maker, and that the Abu Dhabi BDC was in fact acting as proxy for the client decision maker. Deutsche Bank paid the Abu Dhabi BDC over $3 million without invoices.

By agreeing to misrepresent the purpose of payments to BDCs and falsely characterizing payments to others as payments to BDCs, Deutsche Bank employees conspired to falsify Deutsche Bank's books, records, and accounts, in violation of the FCPA. Additionally, Deutsche Bank employees knowingly and willfully conspired to fail to implement internal accounting controls in violation of the FCPA by, among other things, failing to conduct meaningful due diligence regarding BDCs, making payments to certain BDCs who were not under contract with Deutsche Bank at the time, and making payments to certain BDCs without invoices or adequate documentation of the services purportedly performed.

Deutsche Bank will pay a total criminal penalty of $79,561,206 in relation to the FCPA scheme. In a related matter with the U.S. Securities & Exchange Commission, Deutsche Bank will also pay $43,329,622 in disgorgement and prejudgment interest.

The Commodities Fraud Case

According to admissions and court documents, between 2008 and 2013, Deutsche Bank precious metals traders engaged in a scheme to defraud other traders on the New York Mercantile Exchange Inc. and Commodity Exchange Inc., which are commodities exchanges operated by the CME Group Inc. On numerous occasions, traders on Deutsche Bank's precious metals desk in New York, Singapore, and London placed orders to buy and sell precious metals futures contracts with the intent to cancel those orders before execution, including in an attempt to profit by deceiving other market participants through injecting false and misleading information concerning the existence of genuine supply and demand for precious metals futures contracts.

On Sept. 25, 2020, a Chicago federal jury found two former Deutsche Bank precious metals traders, James Vorley, of the United Kingdom, and Cedric Chanu, of France and the United Arab Emirates, guilty of wire fraud affecting a financial institution for their respective roles in the commodities scheme. A third former Deutsche Bank trader, David Liew, of Singapore, pleaded guilty on June 1, 2017, to conspiracy to commit wire fraud affecting a financial institution and spoofing. A fourth former Deutsche Bank trader, Edward Bases, of Connecticut, was charged in a third superseding indictment on Nov. 12, 2020, and awaits trial on fraud and conspiracy charges. An indictment is an allegation and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

Deutsche Bank has agreed to pay a total criminal amount of $7,530,218 in relation to the commodities scheme. This amount includes criminal disgorgement of $681,480, victim compensation payments of $1,223,738, and a criminal penalty of $5,625,000, which will be fully credited against Deutsche Bank's payment of a civil monetary penalty of $30 million to the U.S. Commodity Futures Trading Commission in January 2018 in connection with substantially the same commodities conduct.

The department reached this resolution with Deutsche Bank based on a number of factors, including the Company's failure to voluntarily disclose the conduct to the department and the nature and seriousness of the offense, which included corrupt payments, willful violations of the FCPA accounting provisions, and commodities trading violations in three countries. Deutsche Bank received full credit for its cooperation with the department's investigations and for its significant remediation. Penalties associated with both the FCPA and wire fraud conspiracies reflect a discount of 25 percent off the middle of the otherwise-applicable U.S. Sentencing Guidelines fine range, to account for Deutsche Bank's 2015 resolution in connection with its manipulation of the London Interbank Offered Rate.  . . .

[D]eutsche Bank engaged foreign officials, their relatives, and their associates as third-party intermediaries, business development consultants, and finders to obtain and retain global business.  The order finds that Deutsche Bank lacked sufficient internal accounting controls related to the use and payment of such intermediaries, resulting in approximately $7 million in bribe payments or payments for unknown, undocumented, or unauthorized services.  The order further finds that these payments were inaccurately recorded as legitimate business expenses and involved invoices and documentation falsified by Deutsche Bank employees. 

[T]homas J. Robbins and Daniel J. Merriman met while incarcerated for separate and unrelated securities fraud convictions. The complaint alleges that after they were released, Robbins and Merriman created a high-yield trading program, and that, beginning in 2016, Robbins and Merriman solicited investor funds through a series of representations, including: that the Church of Jesus Christ of Latter-day Saints was a client; that they had consistently generated large returns for prior investors; and that investors could expect to earn profits of at least 20% per month. The complaint alleges that none of these representations was true. The complaint further alleges that Robbins and Merriman misappropriated investor funds to pay purported profits to earlier investors and to pay personal expenses. According to the complaint, losses for the trading program totaled over $10 million.

In 2017, the complaint alleges, Robbins and Merriman, together with Clark J. Madsen and Mark W. Wiseman, devised a new scheme to fraudulently sell millions of shares of stock in ConTXT, Inc., a company founded by Madsen, in unregistered transactions. As alleged, because Robbins and Merriman were convicted felons, their involvement in ConTXT was actively concealed, and ConTXT's Private Placement Memorandum (PPM) and other documentation provided to investors falsely attributed the duties performed by Robbins and Merriman to a nominee. The PPM allegedly also contained false and misleading information about ConTXT's financial condition and profitability. The complaint alleges that Robbins, Merriman, and Wiseman lied about the use of investor funds, misrepresented ConTXT's financial condition, and misappropriated investor funds for their personal benefit. Robbins and Merriman also allegedly acted as unregistered brokers in the distribution of ConTXT stock and received commissions for their efforts. The defendants allegedly sold at least $942,800 of ConTXT stock in unregistered transactions and distributed millions of additional shares to satisfy prior debt obligations.

On October 22, 2019, in connection with a routine examination of the firm, FINRA Staff requested that the firm provide lists of the outside business activities (OBAs) of the firm's registered persons for the review period from September 5, 2018 to September 4, 2019, and, if available, documents showing the firm's approval of those OBAs. On November 4, 2019, Pollard created documents containing lists of OBAs for two persons registered through the firm (Pollard and one other person) and received a list of OBAs from a third person registered through the firm. The third person's list had been backdated to October 1, 2019, and Pollard then backdated the two OBA lists he drafted to October 1, 2019. Pollard then submitted these backdated documents to FINRA.

In response to a follow-up request from FINRA, sent in November, for evidence of supervisory review and approval of the OBA lists, Pollard, who was a principal of the firm at the time, initialed two of the three lists and dated his initials October 1, 2019. Pollard asked another registered principal of the firm to sign Pollard's OBA list, and that other registered person also dated his signature October 1, 2019. Pollard then submitted these backdated documents to FINRA.

Although the firm had approved the representatives' OBAs, the backdated documents that Pollard produced to FINRA purported to show that the firm had approved them in writing and had maintained the three OBA lists prior to FINRA's October 22, 2019 request, when, in fact, that was not the case.

• Securities Industry Commentator
• Bill Singer