Bombshell: Deutsche Bank Hid $12 Billion In Losses To Avoid A Government Bail-Out

Tyler Durden's picture

Forget the perfectly anticipated Greek (selective) default. This is the real deal. The FT just released a blockbuster that Europe's most important and significant bank, Deutsche Bank, hid $12 billion in losses during the financial crisis, helping the bank avoid a government bail-out, according to three former bank employees who filed complaints to US regulators. US regulators, whose chief of enforcement currently was none other than the General Counsel of Deutsche Bank at the time!

From the FT:

The three complaints, made to regulators including the US Securities and Exchange Commission, claim that Deutsche misvalued a giant position in derivatives structures known as leveraged super senior trades, according to people familiar with the complaints.


All three allege that if Deutsche had accounted properly for its positions – worth $130bn on a notional level – its capital would have fallen to dangerous levels during the financial crisis and it might have required a government bail-out to survive.


Instead, they allege, the bank’s traders – with the knowledge of senior executives – avoided recording “mark-to-market”, or paper, losses during the unprecedented turmoil in credit markets in 2007-2009.


Two of the former employees allege that Deutsche mismarked the value of insurance provided in 2009 by Warren Buffett’s Berkshire Hathaway on some of the positions. The existence of these arrangements has not been previously disclosed.

Naturally, DB is defending itself in the only way it knows: "this is complicated stuff, and we know better than those guys." In other words, this is just a "tempest in a teapot." Where have we heard that before...

The bank said the investigation revealed that the allegations “stem from people without personal knowledge of, or responsibility for, key facts and information”. Deutsche promised “to continue to co-operate fully with the SEC’s investigation of this matter”.


The complaints were made at different times in 2010 and 2011 independently of each other. All of the men spent hours with SEC enforcement attorneys and provided internal bank documents during multiple meetings, people familiar with the matter say.

SEC enforcement attorneys eh? Because this is where it gets really fun: the person who was in charge of DB's legal compliance at the time was none other than Robert Khuzami. The same Robert Khuzami who just happens to be the chief of enforcement at the SEC!

Robert Khuzami, head of enforcement at the SEC, has recused himself from all Deutsche Bank investigations because he was Deutsche’s general counsel for the Americas from 2004 to 2009. Dick Walker, Deutsche’s general counsel, is a former head of enforcement at the SEC. The SEC declined to comment on the investigation.

Sadly, the "we are too sophisicated" defense may not be very effective this time.

Two of the former Deutsche employees have alleged they were pushed out of the bank as a result of reporting their concerns internally.
One of them, Eric Ben-Artzi, a risk manager at Deutsche, was fired three days after submitting a complaint to the SEC. In a separate complaint to the Department of Labor, he claims his dismissal was retaliation for his allegations.


Matthew Simpson, a senior trader at Deutsche, also left the company after submitting his own complaint to the SEC. Mr Simpson declined to comment. Deutsche Bank paid Mr Simpson $900,000 to settle his anti-retaliation lawsuit. Reuters reported in June 2011 that Mr Simpson had raised concerns about improper valuation of the derivatives portfolio.


The third complainant, who worked in risk management and has requested anonymity, raised his concerns to the SEC and voluntarily left the bank.

Or actually, since every bank in the world is forced to lie, cheat and mismark its own balance sheets every single day, not least of all the European Central Bank which as of moments ago has to accepted defaulted Greek bonds as collateral, this may just be completely ignored.

After all opening this particular Pandora's Box may well reveal that not only DB but the world's entire financial system is completely and totally insolvent.

* * *

And for those curious why the SEC's chief enforcer will never lift a finger against his own bank, all other considerations and recusals aside, here is what we wrote back in May 2010

Robert Khuzami Stands To Lose Up To $250,000 If He Pursues Action Against Deutsche Bank

When the SEC'a Robert Khuzami recently recused himself of pursuing an investigation against Deutsche Bank in regard to potential CDO malfeasance, a bank where it is common knowledge the CDOs flowed (and were shorted "where appropriate" by Mr. Lippmann and his henchmen) like manna from heaven, we were curious just how large the conflict of interest must be for him to not pursue his official duty. Luckily, we were able to answer this question when we recently encountered Mr. Khuzami's Public Financial Disclosure Report for Executive Branch Personnel. It appears that Mr. Khuzami, who from 2002 to 2009 worked at DB, most recently as General Counsel, might have directly profited quite handsomely from the very activity he is now prosecuting Goldman, and other banks very likely soon, for engaging in. How handsomely? His 2007 bonus, 2008 salary and bonus, and 2009 salary added up to $3,804,537. This works out to about $1.9 million in comp per year. And let's not forget that 2006/2007 was the peak years for DB's CDO issuance. It sure seems Mr. Khuzami benefited nicely as a participant in precisely the kind of CDO gimmickry that he is currently all over Goldman for. Yet most ironic, is that Robert is expecting to receive between $100,001 and $250,000 in vested deferred stock comp from Deutsche Bank in August 2010. Should he, or someone else at the SEC, commence an investigation into Khuzami's former employer, the SEC's Director of Enforcement is sure to lose a substantial amount of money tied into the absolute value of Deutsche Bank stock.

And it doesn't end there. Khuzami lists the following asset holdings as of June 2009:

  • Federated US Treasury Cash Reserves: $1,001-$15,000
  • US Treasury Cash Reserves: $1,000,001-$5,000,000
  • Fidelity Advisor New Insights Fund: $15,001-$50,000
  • Henderson Int'l Opportunities Fund: $15,001-$50,000
  • Deutsche Bank Cash Account Pension Plan: $100,001-$250,000
  • DB Stable Value Fund: $1,001-$15,000
  • Goldman Sachs Mid Cap Value Fund: $1,001-$15,000
  • Dodge and Cox Int'l Stock Fund: $50,001-$100,000
  • SSGA Money Market Fund: $15,001-$50,000
  • Delaware Emerging Markets: $50,001-$100,000
  • Gateway Fund (401k): $15,001-$50,000
  • Third Avenue Real Estate Fund (401k): $15,001-$50,000
  • Touchstone MidCap Growth Class A (401k): $15,001-$50,000
  • Wells Fargo Endeavor Select FD (401k): $15,001-$50,000
  • Yacktman Fund (401k): $15,001-$50,000
  • PIMCO Real Return Class A (401k): $50,001-$100,000
  • Principal Short-Term Fixed Income (401k): $1,001-$15,000
  • Personal Residence - New York (Gross Rental Income): $1,000,001-$5,000,000
  • Deutsche Bank Common Stock (Vested Amount Compensation): $100,001-$250,000
  • Vanguard 529 Moderate: $50,001-$100,000
  • Vanguard 529 Aggressive: $1,001-$15,000

It appears Mr. Khuzami has done quite well while working in the private sector, undoubtedly defending his German employer from precisely the same actions he, or someone else at the SEC, may soon charge the firm was defrauding investors by. His total disclosed asset range from $2,525,000 to $11,375,000. It is also ironic that nearly half Mr. Khuzami's assets are contained in real estate, and not to mention that a substantial amount of his assets are also contained in Deutsche Bank plans as well as DB stock deferred comp. In fact, let's take a look at that deferred comp of $100,001-$250,000 a little closer.

It appears the SEC's Enforcement Director has between $100,001 and $250,000 in DB deferred stock compensation, which becomes payable in August 2010. Obviously this is not a trivial number. And while Khuzami may have recused himself from pursuing DB for CDO infarctions, that does not mean that some other SEC enforcer (surely, their $1 billion a year budget allows them at least more than one enforcement professional) would not be able to go after DB. The problem as we see it is that since the announcement of the SEC case against Goldman the firm has lost about 25% of its market cap. It is conceivable that DB, which dabbled far more in CDOs, and thus the SEC would have a much stronger case agaisnt the bank, would thus lose far more of its market cap should the SEC announce a case against the Germans. In fact, we could be looking at Mr. Khuzami's Vested Deferred Compensation value dropping from $100,001 - $250,000 to maybe even as low as $15,001-$50,000. Then again, this becomes irrelevant after August, when the former DB GC will have collected all his dues. Does this mean we should expect nothing from the SEC against Deutsche Bank for at least 4 more months? And is September 1 the day when the SEC formally announces charges against Deutsche? We would love to get the SEC's feedback on this.

Mr. Khuzami's potential conflicts of interest do not end with his open exposure to Deutsche Bank. His Schedule A appendix indicates that the man has open equity positions with firms such as Bank of America, Deutsche Bank, and JP Morgan. To wit:

Would this mean that Mr. Khuzami, and thus the entire SEC Enforcement Division, if judging by the Deutsche Bank case study, would recuse itself of investigating these three firms from an enforcement standpoint?

We certainly do not begrudge Khuzami's generous winnings as part of the private sector. If anything, any borderline criminal activity he may have helped cover up as GC of Deutsche (an act he was supposed to do so no ill-will there) should provide him with the knowledge to prosecute just such activity. However, when the head of the main US regulator's enofrcement body is so terminally ensnared in not just the Wall Street complex, but in the very fabric of Keynesianism (that up to $5,000,000 Treasury holding for example and not to mention his up to $5,000,000 rental property), the population should ask just how extremely biased this man can be when prosecuting the very system that allows him to have up to $11 million in assets currently tied in to the perpetuated status quo. Surely, should the Fed, and the market in general, be "surprisingly" uncovered to be the same ponzi construct as Madoff's pyramid scheme, Khuzami, and who knows how many other people, stand to lose virtually the bulk of their assets. This makes them very much conflicted in any real enforcement action, and certainly not independent or impartial. Perhaps Dodd, in his joke of a bill, can consider just how to establish a securities regulator which by its very nature is not constantly in bed with the very subject it is supposed to be investigating.

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stormsailor's picture

and meanwhile, in other news.  water is still wet, and the sky is blue.

nope-1004's picture

TBTF banks = insolvent.  Insolvent and still operating = Fraud.


Mr Lennon Hendrix's picture

The question I want answered is what are the Central Banks waiting for to let the system collapse?  Obviously they could have let it collapse in 2008, but they didn't and they increased the leverage of debt.  So let's say they keep bailing out insolvent banks for year after year, everytime increasing the leverage.  Soon all currencies are devalued 33% from where they are now and oil has increased in price so that GDP is once again negative.  Now they system does collapse because people can not afford to drive to and from work and school and on and on.

Then the World Bank and IMF come in and try to supercede power from the 1st World Nation-States and ask for our hand in a One World Currencey in exchange for our gold reserves.  Now the UN runs everything and it doesn't matter where you live, anyone can become the Chair at the BoE!

So now we know the plan but do we know how to stop them....

Yes we do....

Take back the real money supply, and buy as much gold and silver in physical form as you can.  These are good prices historically as when rates increase gold rises (evidence is the 1970's) and inflation adjusted (using 1980 as the baseline) gold is $800.

Michaelwiseguy's picture

Million Man Gun March on Washington D.C. to stop the Federal Government from giving away US Monetary Sovereignty.

I can see the Military joining us in this effort to have Fort Knox Audited, The Federal Reserve Corporation Nationalized, and have a new Gold backed currency established.

And we'll back that up with an epic gun fight if necessary.

The Alarmist's picture

So, now that their DB bonus shares are vested and delivered, they feel duty bound to blow the whistle.  DB ought to exercise the clawback right buried in the fine print of the T&C's.

Vampyroteuthis infernalis's picture

My question is why would Douche Bank avoid a bailout? Was it not every bank's dream to get out of the red on taxpayer's money?

wisefool's picture

As I understand it, there are branding considerations, in addition to compensation controls.

For example, in the US, General Motors effectively got bailed out 3 or 4 times already. 2 more to come within the next year. Ford did not get a bailout, but they did recieve marginal benefits in that the shared parts of the supply chain did not collapse.

Some people were biased twords Ford non-bailout status, increasing the value of that brand over GM.

jayman21's picture

Ford has been getting a reach around bail out from the Department of Energy.  Tyler posts the handouts every quarter and Ford always tops the list.

wisefool's picture

Good point and thanks. Kinda like how solyndra: 1 green company, out of thousands, that never produced a product, got as much tax payer money from D.o.E.  in 1 year than all the oil companies (combined) got in 50 years (combined) for their tax perk.

Its all soo complicated.

jayman21's picture

Wisefool - the bread and circus is complicated.  The underlying objective is simple.  Take as much from the sheep as possible without upsetting the apple cart.  The gov't borrows from the Private Federal Reserve Corporation which is printed money and charges interest.  They call it debt to keep the sheep confused.  The interest is paid with our taxes which is the largest one line item on the budget.  This steals from everyone who has saved.



camaro68ss's picture

Banks hiding losses... Noooo you don't say. Zero hedge has really jumped the shark on this one. Haha

old naughty's picture

"...water is still wet, and the sky is blue."

Liquid must flow and rain needs clouds (so gray sky!).

but but would it not read as: They hid to make sure they got bail outs?

I am confused.

SMG's picture

If only I knew that were true for sure.  There's been so many false hopes the last few years, I'm worn out. 

Still hopeful till the end though.

Seer's picture

Million Man March, really?

The only thing that govts understand is violence.  With all the sonic cannons, drones and whatever else comes out of the govt's secret labs such a "march" would wind up being one big slaughter.

It's been tried: Shays rebellion.

The System derives its power from PARTICIPATION.  Remove your energies from it and it folds.  Not saying that violence and killing won't happen, but there's no surer way of guaranteeing it than to go all-confrontational.

Required reading: The Art of War

jayman21's picture

You will be called a terrorist.  That knock on the door might not be friendlies.



Whiner's picture

I am in. Figure out how the PTB can't spin it as Goldfinger looting Ft. Knox. We've enough relationships in the military for a quiet coup, but we goota promise them their place as the Heros of history under a new nation thy shepherd into existence, new constitution, etc. Will have to liquidate many obstacles, peacefully, no killings, just buy them off quietly as we can.

Urban Redneck's picture

The US effectively controls the WB & IMF (which rules out their use against massa in the short term), the BRICS didn't get the increased voice they sought at the existing table, so look to the buildup of regional trade and currency blocks...

john39's picture

read their symbols... they are waiting for their god...

Mr Lennon Hendrix's picture

They think they are the gods.

BLOTTO's picture

And 'they' *think* its their divine right to rule over commoners.


Maybe they are stalling for the right time based on the signs/astrology they have been following for eons.


They follow a different set of laws/rules.

eatthebanksters's picture

The MSM won't even report this...Khuzami is one of the king's protected cronies

sessinpo's picture

Hendrix: "The question I want answered is what are the Central Banks waiting for to let the system collapse? "


Comment: It goes on as long as the people trapped within the system, you and I, let it go on. If you were a drug dealer, why would you cut off your junkies as long as they pay?

They will continue to leverage the average citizen until the citizen either can no longer or will no longer be leveraged into further corruption and slavery.

Seer's picture

"The question I want answered is what are the Central Banks waiting for to let the system collapse?"

There are two reasons:

1) Too much offsetting weight against UN and IMF: China and Russia;

2) Energy, oil specifically.

For item #1 there has been a slow and steady attack.  UN/IMF, um... US has been working very hard to redeploy its military into that region.  I think that there's likely a lot of energy being put in place to force a wedge between Russia and China.

Iran's oil needs to be in the hands of the "West."  The UN/IMF/US can't compete push over Russia and Iran.  Obviously Russia cann't be a straight up confrontation, in which case the attack point is via Iran.  Why is this important?  Just look at how much control Russia has over nearly all of Europe: natural gas being biggest control point.  The US loses its strength if it doesn't have the likes of the UK, France and Germany to rubber-stamp its actions.  Without the UN/IMF the US has to perform naked aggression, something that will pretty much be the end of any possibility of creating anything even remotely promoting international "stability," ever again.

When both of the above are sufficiently secured (or should it be obvious that the end game is now) the US will tell China to go jump, that it will default on its debts.

I'm amazed that people on ZH can be so convinced of the efficacy of guns yet fail to realize that it works the other way too, and that TPTB have a heck of a lot more firepower.  Whatever TPTB needs it will get, and, as the US' State Department likes to say all so frequently: "all options are on the table."  Hungry people will make a pact with the devil; the US military will likely become food providers...

That TPTB are trying to coalesce even more is only natural in the big power game.  I don't rule out the possibility of them achieving it; BUT, achieving and maintaining are two completely different animals, and it's here that I don't see it being able to be maintained: my simple equation of BAD = FAIL (and BIG = FAIL) guarantees it won't work.

Mr Lennon Hendrix's picture

You have too much faith in the MIC. 

If the MIC can't collect taxes, they are done.  The power lies in our hands, not theirs.

catacl1sm's picture

Who needs taxes when you can just print?

jonjon831983's picture

If these things can be hidden for so long, why reveal it so soon?

A crisis is always a good opportunity.  So, hold onto the crisis card until you have positioned yourself to accomplish a goal and then unleash hell.

jamezelle's picture

Government = insolvent. Insolvent and still operating = Fraud



Seer's picture

Entire Model (perpetual growth on a finite planet = Ponzi) = Fraud

Michaelwiseguy's picture

By going off the so called Fiscal Cliff January 1st, does that mean we can retire the "Bush Tax Cuts" meme from there on out?

For that reason alone, I say go over the Fiscal Cliff at ramming speed.

DoChenRollingBearing's picture

Mr Lennon Hendrix

You know as well as I do: Deutschland uber alles!

GoNavy's picture

And if DB can do it and get away with it, others can (and probably have), so get your short orders in now.


And Chairman Bernanke,  get ready for a very busy day tomorrow.

yogibear's picture

Exactly! Mark to fantasy.  They will push the whole financial fraud game until citizens react with force.

Debt-Is-Not-Money's picture

I hear the bank will be re-named to "Douche" Bank!

Silver Bug's picture

What a shocker! Central banks lieing about their numbers?! The manipulation continues.


"Avoid the five most common gold and silver investing mistakes." Free gold and silver eBook, highly recommended. 

Disenchanted's picture



Which gov't bailout did they avoid?


March 15 - AIG discloses that several U.S. and European banks were beneficiaries of the taxpayer bailout of the insurer and said that more than $90 billion had been paid to various banks between the September bailout and the end of the year. The banks include Goldman Sachs, Societe Generale, Deutsche Bank, Barclays, Merrill Lynch and Bank of America.




btw... Deutsche Bank/Alex Brown/Bankers Trust, lots of interesting connections...

notbot's picture

Didn't Paul Singer touch on this?  Banks are totally opaque, even to the most sophisticated outside investors.

knukles's picture

Didn't Jimmy Savile touch my leg?

WonderDawg's picture

Knuksie! How you doing my friend?

knukles's picture

Dawg!  Everything goes well.  Better than hoped, my major problems are those I seem to conjure up in my head in the middle of the night.
This time when I awaken, they prove imaginary as opposed to years ago, chasing me around the bedroom...
New awakenings... major progress.... Big Stuff with the Big Guy

Family is healthy and secure, doing well and happy in all their pursuits. Golf game took a hit, almost 4 weeks off with a wrist complication but reentry is being kind, producing a higher handicap.

Amazing the circus about us in life, eh?
We're blessed Dawg, blessed.  Blessed with more than a modicum of serenity to see us through.

Hope all's well with you and yours.
Best and All the Promises be Yours
In Faith,



WonderDawg's picture

Glad to hear it, my friend. I can't complain, either. Nearing the end of a year long project that will hopefully produce some cash flow, but we'll see. Golf game has been sketchy but last Saturday the swing felt the way it's supposed to feel. Short game, usually my strength, wasn't helping. Damn near had a hole in one, too. Hoping to play this weekend.

We are indeed blessed. Clarity of mind is helping me navigate these choppy waters and I'm grateful.

Stay present, my brother. Squeeze life.

MachoMan's picture

I think that was brian peppers

Mr Lennon Hendrix's picture

Looks like Mr Kamakazi will either be hung or sleeping with the fish soon.

LongSoupLine's picture

Or promoted as new US Treasury Secretary.

Mr Lennon Hendrix's picture

Or playing golf with Corzine and Ken Lay soon.