A US judge said Monday that Deutsche Bank AG could sue shareholders for allegedly concealing deficiencies in its internal controls when trading with dangerous, ultra-wealthy clients such as sex offender Jeffrey Epstein and the Russian oligarch.
US District Judge Jed Rakoff in Manhattan said shareholders knew in their proposed class action that the German bank was aware that its anti-money laundering and anti-money laundering regulations were ineffective, and that the share price could fall if the truth became known. .
In his 30-page decision, Rakoff said he described specific processes that Deutsche Bank deliberately undermined through an “unwritten but widespread practice” that exempted wealthy, politically connected customers from regular internal scrutiny.
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Rakoff said shareholders could pursue claims against chief executive Christian Sewing and his predecessor, John Crayon. He dismissed claims against Deutsche Bank’s chief financial officer and his predecessors.
A Deutsche Bank spokeswoman declined to comment. The lawsuit covers investors in Deutsche Bank Securities from March 14, 2017 to May 12, 2020.
Since taking office in 2018, Sewing has boosted profits and has sought to restore investor confidence that the bank has overcome its lack of internal controls.
These include failing to better monitor its work for Epstein, which resulted in a $ 150 million fine from the New York regulator in 2020 and dealing with the Estonia branch of Danske Bank, which is embroiled in a massive money laundering scandal.
The accused said the shareholders failed to show any motive for the fraud and that the bank’s statements about its compliance processes were “aspirational” or “puffery.”
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But Rakoff complained that the stitching and crayon “were personally aware of the shortcomings of the bank’s KYC and AML practices” that they had made inaccurate or misleading filings.
Emma Gilmore, a shareholder advocate, said companies have long sought to escape liability by making their statements about compliance with ambitious statements.
“Judge Rakoff’s decision makes it clear that this argument is exceptionally cynical, which has no basis in law,” Gilmore said in an email.
The case is Karimi v. Deutsche Bank AG et al., U.S. District Court, Southern District of New York, no. 22-02854.