Enough About Us: Deutsche Traders Want to Focus on Bank Misdeeds
(Bloomberg) -- Deutsche Bank AG faces so many investigations that the company scapegoated two of its own traders in a Libor-rigging case to avoid wider penalties, defense attorneys told a federal judge in New York.
Matthew Connolly and Gavin Black want to shift the focus to Deutsche Bank at their trial on allegations they conspired to rig the benchmark. Their lawyers say the bank has been subject to so many U.S. inquiries -- for manipulating mortgage securities, interest-rate indexes and precious-metals, not to mention laundering cash for Russian oligarchs -- that it’s working with prosecutors to cast unfair blame on Connolly and Black for rigging the London interbank offered rate.
“This is not the only investigation they are involved in,” Black’s attorney, Seth Levine, told U.S. District Judge Colleen McMahon earlier this week when jurors weren’t present. “I think that there are lots of issues about the nature of what their relationship is with the Department of Justice right now.”
Whether the argument helps clear Connolly and Black of conspiracy and fraud charges remains to be seen. But defense lawyers made clear they plan to point an accusatory finger at the Frankfurt-based bank, which agreed to pay more than $2.5 billion in fines and legal fees stemming from probes into Libor-rigging. The defense also says there were no hard and fast rules for how banks submitted data to calculate Libor.
“It’s a great argument,” Judge McMahon said Monday, before jurors came into court. The jury should be able to consider the possibility “that these men are being framed, that they are scapegoats in the truest biblical sense for a corporation that has done so much wrong that it needs to cooperate for and atone for,” she said.
Connolly and Black are accused of conspiring to manipulate the benchmark, which is based on the average borrowing rate of the world’s biggest banks and used to value trillions of dollars in financial products. Prosecutors say the two sought to influence the data the bank submitted to benefit trading positions and boost the company’s profit and their own bonuses.
Troy Gravitt, a Deutsche Bank spokesman, declined to comment.
Deutsche Bank has come under scrutiny by investigators in several countries over its trading and banking practices. It reached a $7 billion settlement last year with the Justice Department over its sale of crisis-era mortgage securities, and earlier this year agreed to pay $70 million to settle claims by the U.S. Commodity Futures Trading Commission that its traders tried to rig an interest-rate benchmark known as the ISDAfix.
The bank paid another $30 million to resolve civil charges by the Commodity Futures Trading Commission that it attempted to manipulate precious-metals futures; two former Deutsche Bank traders face charges in Chicago related to the trading.
Other threats may yet loom. The U.S. is said to be investigating whether Deutsche Bank traders, along with those at other banks, sought to manipulate trading in sovereign, supranational and agency bonds. The bank has said it’s cooperating with authorities; the status of that probe is unclear.
And then there’s the matter of some $10 billion that exited Russia by way of the bank’s Moscow branch. The German lender has already paid hundreds of millions of dollars to U.S. and U.K. regulators who said the transactions were suspicious and faulted the bank for lax anti-money-laundering controls. The bank has yet to resolve a criminal investigation into that matter.
Prosecutors want to call Walter Ricciardi, a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP who was hired by Deutsche Bank to probe allegations of Libor manipulation, to testify about the bank’s internal investigation. Ricciardi testified at a hearing outside of the jury’s presence on Tuesday that the Libor probe was the "longest, largest" investigation that Paul Weiss ever conducted.
The defense says Ricciardi shouldn’t be allowed to testify about statements Black made to company lawyers doing the investigation. But if he does take the stand next week, they want to ask him about the bank’s relationship with the government.
“I want to know who at Deutsche Bank is talking to the Department of Justice, what deals are in the offering, what kind of relationships they have in investigations,” Levine told the judge.
Alison Anderson, a prosecutor, said during a hearing outside the jury’s presence that defense attorneys have been told that there are a number of “investigations in which Deutsche Bank is cooperating in order to seek favorable treatment."
So far, defense lawyers have yet to raise the issue before the jury, and McMahon said she may limit the questions they pose. Still, she ordered the government to provide them lawyers with a list of all of its publicly disclosed investigations, and to give the court a sealed document detailing U.S. probes of the bank that haven’t been revealed.
“The defense has the right to elicit from an appropriate witness the fact that Deutsche Bank continues to have an interest in making the Government happy," McMahon said in a ruling Wednesday. "There is no need to prolong this overly long trial with frolics and detours into the details of any -- I repeat, any -- of those investigations."
In testimony Wednesday and Thursday, the jury heard former Deutsche Bank trader Michael Curtler say he changed Libor submissions to help himself and other traders benefit their positions. Curtler, who pleaded guilty and cooperated with the government to avoid prison time, was the third co-conspirator to testify against Connolly and Black.
Curtler said he wasn’t the leader of the plot and initially lied to investigators by characterizing Libor requests from traders as “market color” used to calculate the bank’s submission. Under cross-examination, he said that while he didn’t think taking trading positions into account was criminal, he knew it was unethical.
The case is U.S. v Connolly, 16-cr-00370, U.S. District Court, Southern District of New York (Manhattan).
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