Deutsche Bank Settles LIBOR Charges With FCA, DOJ, CFTC, NY State

Deutsche Bank paid $2.519 billion in fines and disgorgement, a subsidiary pleaded guilty to criminal charges and the parent entered into a three year deferred prosecution agreement which requires a monitor to resolve charges stemming from its years long manipulation of LIBOR. The investigation was conducted by: The U.K. Financial Conduct Authority; the Department of Justice; the CFTC; the SEC; the F.B.I.; and the New York Department of Financial Services. There have been five previous settlements tied to the manipulation of LIBOR.

Deutsche Bank was a member of the panel of banks whose submissions were used to calculate LIBOR for various currencies. Those included U.S. Dollar, Yen, Pound Sterling, Swiss Frank and EURIBOR, the Euro Interbank Offered Rate.

Over an eight year period beginning in 2003, according to the admissions of the bank in the court papers, Deutsche Bank traders undertook efforts to move the benchmark rates in a direction that favored their trading positions. Derivative traders, whose compensation was directly tied to their success, requested that LIBOR submitters at Deutsche Bank and other banks submit contributions favorable to trading positions rather than those tabulated in accord with the definition of LIBOR. For example:

• [O]n March 22, 2005, a Deutsche Bank U.S. Dollar LIBOR submitter explained how he would manipulate the rate for a trader in New York stating [in an electronic communication] ‘if you need something in particular in the libors i.e. you have an interest in in a high or low fix let me know and there’s a high chance I’ll be able to go in a different level. Just give me a shout . . .’”

• On May 17, 2006 “the supervisor of LIBOR submissions in London received a request from a trader in New York asking, ‘If you can help we can use a high 3m fix tom.’ The supervisor replied . . . ‘I’m off but [submitter] is your libor man . . .’ The submitter agreed . . . replying, ‘Will do chaps.’”

• In March 2007 the bank’s LIBOR submitter told the head of Deutsche Bank’s Global Finance Unit: “’HAVE U SEEN THE 3MK FIXING TODAY? THAT WAS AN EXCELLENT CONCERED ACTION FFT/LDN. CHEEERS.’”

These and similar actions defrauded counterparties to interest rate derivatives trades.

To resolve potential charges arising from the investigation: DB Group Services (UK) agreed to plead guilty to one count of wire fraud and pay a $150 million fine (here); Deutsche Bank entered into a deferred prosecution agreement, admitting its role in manipulating LIBOR and participating in a price-fixing conspiracy in violation of the Sherman Act by rigging Yen LIBOR contributions with other banks. The agreement requires the bank to continue cooperating with the DOJ, pay a $625 million penalty in addition to the one paid by its subsidiary and to retain a corporate monitor for three years (here).

Collectively the bank paid $2.519 billion in regulatory penalties and disgorgement: $800 million as a result of a CFTC action; $600 million as a result of a New York Department of Financial Services action; $344 as a result of an FCA action; and the DOJ penalties noted above.