Global Biz

Deutsche's firing of top trader sparks probe

(Agencies)
Updated: 2011-06-24 17:17

A Deutsche Bank logo is pictured in front of the Deutsche Bank headquarters in Frankfurt February 24, 2011.?[Photo/Agencies]

In the fall of 2009, Deutsche Bank quietly fired one of its top derivative traders in London after a colleague in New York complained about finding "substantial trading anomalies" in a multibillion dollar portfolio of high-risk credit default swaps managed by the German-based bank, Reuters has learned.

The bank dismissed Alex Bernand after a quick internal investigation prompted by the employee's complaint led to the discovery of improper trading in one of Bernand's personal brokerage accounts, according to documents seen by Reuters and interviews with people familiar with the situation.

The documents, part of a Sarbanes-Oxley whistleblower action filed against Deutsche in May 2010 by the employee in New York, also reveal that the Securities and Exchange Commission opened an inquiry last year into a related allegation that some of the assets in the derivatives portfolio overseen by Bernand may have been improperly valued in order to hide trading losses.

Deutsche bank spokeswoman Renee Calabro declined to comment on Bernand's dismissal. But she said the allegation that some assets in the bank's derivatives book had been improperly valued was investigated by the bank and is "wholly unfounded."

The SEC investigation and Bernand's October 2009 firing, neither of which has been previously reported, come as Deutsche is aggressively winding down the portion of its derivatives trading business that Bernand had overseen. Earlier this month, the bank reported in an investor presentation that its plan to unwind its "high-risk" credit correlation portfolio "is well ahead" of schedule. The bank first announced a plan to begin "de-risking" some of its derivatives trading desks in late 2008.

In January, Deutsche settled the whistleblower case by agreeing to pay $900,000 to trader Matthew Simpson and promoting him to managing director shortly before he voluntarily agreed to leave the bank in April. It was the largest Sarbanes-Oxley whistleblower settlement for a complaint filed in 2010. Simpson, who now works for Rochdale Securities in Stamford, Connecticut, did not return a phone call seeking comment.

UNFOUNDED ALLEGATION

"This complaint, which is over a year old, has been the subject of a thorough investigation, and we believe that any allegations about financial misreporting are wholly unfounded," said Calabro, who declined to comment on the terms of the settlement with Simpson. "The bank is cooperating with the SEC on its review of the matter."

An SEC spokesman declined to comment.

Bernand, who lives in France, also declined to comment. On his LinkedIn profile, Bernand describes himself as an "independent philanthropy professional."

Simpson's and Bernand's names were redacted from the whistleblower documents seen by Reuters, but their identities were confirmed by two people familiar with the situation.

In its settlement agreement with Simpson, Deutsche also denied "any wrongdoing in connection with the matter." In light of the settlement, the U.S. Department of Labor in February closed its investigation into Simpson's claim that he had been retaliated against by some of his superiors for bringing the allegations of improper trading to the attention of the bank's compliance department.

The firing of Bernand, a one-time rising star in the derivatives world, is something of an embarrassment for Deutsche. In 2006, the bank issued a press release to trumpet his hiring from Bank of America as its global head of credit correlation. At BofA, Bernand had pretty much built the Charlotte, North Carolina-based bank's structured credit trading business from scratch.

Inside Deutsche, the portfolio that Bernand oversaw from London was called the "exotics book," because many of the derivatives in the portfolio were tied to complex securities. At its peak, the portfolio was one of the largest on Wall Street with the assets underlying the trades valued in the tens of billions of dollars.