Deutsche Bank Agrees to Pay $55M to Settle SEC False Financial Report Charges

By on June 1, 2015

The Securities and Exchange Commission (SEC) accused Deutsche Bank AG with manipulating the methodologies by which it measured gap risk for its Leveraged Super Senior” (LSS) derivatives during the financial crisis.

Deutsche Bank’s LSS derivatives were intended to serve as protection against credit default losses, but the bank’s collateral for these transactions was insufficient since the relevant trades were leveraged.  Specifically, the collateral amounted to about 9 percent of the $98 billion total in purchased protection.  Consequently, the SEC found that Deutsche Bank’s financial reporting of its potential losses related to these securities was misstated by billions of dollars.

“At the height of the financial crisis, Deutsche Bank’s financial statements did not reflect the significant risk in these large, complex illiquid positions,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “Deutsche Bank failed to make reasonable judgments when valuing its positions and lacked robust internal controls over financial reporting.”

Deutsche Bank neither admits nor denies the SEC’s findings, but agreed to pay a $55 million penalty to settle the charges.

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