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Exclusive: The Inside Story Of How Deutsche Bank "Deals With" Whistleblowers
Back in May we brought you "The Real Story Behind Deutsche Bank's Latest Book Cooking Settlement," in which we detailed the circumstances that led the bank to settle claims it mismarked its crisis-era derivatives book to the tune of at least $5 billion.
Deutsche Bank settled the issue with the SEC for the laughable sum of $55 million a few months back.
The SEC inquiry was prompted, in part, by Dr. Eric Ben-Artzi who was fired from Deutsche Bank in 2011 after expressing his concerns about the bank's valuation methodology.
What follows is the real, play-by-play account of Ben-Artzi's dismissal from Deutsche Bank, told in its entirety for the first time.
* * *
Your Services Are No Longer Needed
On November 7, 2011 Dr. Eric Ben-Artzi walked into a conference room at Deutsche Bank’s U.S. headquarters in lower Manhattan. Seated at a conference table was Sharon Wilson from the Human Resources department. Lars Popken, DB’s head of market risk methodology and Ben-Artzi’s manager, was videoconferenced in.
Ben-Artzi had just returned from FMLA paternity leave and although things had gotten tense just prior to his time off, he certainly didn’t expect what came next. Ben-Artzi’s job, Popken said, was being moved to Germany.
Ben-Artzi thought back to the summer when, in response to rumors that some U.S. positions were likely to be moved overseas, he had mentioned he’d be happy to relocate to Berlin. No such luck. Minutes later, he was terminated and Wilson hurriedly ushered him out of the building. Ben-Artzi wasn’t even allowed to collect his personal belongings.

The (Brief) Backstory
The events that ultimately led Deutsche Bank to boot Ben-Artzi from 60 Wall without so much as a cardboard box for his pictures, pens, and legal pads date back to 1998 and for the sake of brevity, we won't recount the whole story but encourage anyone interested in the entire narrative to review it here.
In short, Deutsche Bank was heavily involved in every single aspect of the market for third-party asset backed commercial paper in Canada prior to the financial crisis. They had an equity stake in the parent of at least two issuers, they served as a liquidity provider on over half of all Series A commercial paper issued by Canadian conduits, they sold the paper through their securities division, and perhaps most importantly, they structured the programs (e.g. LSS deals) that backed the paper. But in the simplest possible terms: Detusche Bank was deeply embedded in a market that collapsed in August of 2007.
As mentioned above, the events that unfolded between June and October of that year are a story in and of themselves, but suffice to say that the market for commercial paper issued by the Canadian conduits imploded on August 13, 2007 (BNP’s move to freeze three ABS funds four days earlier sparked a panic) imperiling retail investors, small- to mid-size corporations, and pension funds and triggering a massive (and incredibly messy) restructuring effort.
Most of this drama had ended by the time Eric Ben-Artzi arrived at Deutsche Bank in June of 2010 and the former Goldmanite likely had no idea what he was about to uncover when he began to look at how Deutsche went about accounting for their exposure to the Canadian conduits during the crisis.
Deutsche Bank played an outsized role in the market for LSS deals in the years leading up to the crisis. In fact, Deutsche Bank accounted for between $120 and $130 billion of the $200 billion (notional) in total LSS deals between 2005 and 2007.
When Ben-Artzi, who has a PhD in applied mathematics from NYU Courant, began to look at how the bank was valuing the gap option on the LSS trades, he made a rather disconcerting discovery.
As a refresher, here’s a simple explanation of the gap option problem with LSS deals:
The laughable thing about LSS deals was that they were effectively non-recourse, meaning that the protection seller was allowed to sell protection on a notional amount that was multiples of the collateral posted, but in the event the market moved against the seller enough to chew through that collateral and a margin call was made, that seller could just say “to hell with it” and walk away from the deal. More simply, I, the seller, insure $100 million in debt, but only post $10 million up front. If there’s a credit market meltdown and my $10 million is no longer sufficient and you, the protection (insurance) buyer, call me looking for more money to compensate you for the elevated risk, I can politely tell you to piss off. The risk that I tell you to piss off is called “gap risk.”
To be a bit more specific, the seller of protection (in this case the Canadian conduits) had the option to walk away from the deal without posting additional collateral (this is the “gap option”), and the value of that option changed depending on a number of factors including credit spreads and correlation.
As it turns out, Deutsche Bank began making these trades without even having a model to value the gap option -- standard models (e.g. a copula model) cannot be used for LSS trades. Not only that, the bank’s credit correlation desk didn’t even bother to consult the market risk methodology department (where Ben-Artzi worked and which was responsible for verifying the appropriateness of valuation models) and instead decided to simply discount the value of the trades by 15%. Sensing that this was likely inadequate, Deutsche briefly attempted to determine the actual value of the gap option on the trades, but when the numbers came back looking rather nasty, the bank did what any pre-crisis sell side firm worth its salt would do: they scrapped that model and went with something that made the results look more favorable. In this case, Deutsche simply set up the equivalent of a loan loss reserve for the entire book and called it a day. At the time (i.e. between 2007 and 2009), other players in the industry valued the gap option at between 2% and 8% of notional. Taking the midpoint there, and taking the midpoint between Deutsche’s estimated $110 and $120 billion in notional exposure, the value of the gap option for the bank would have been nearly $6 billion.
How Deutsche Bank Deals With 'Problem' Employees
Sometime around October of 2010, Ben-Artzi began to ask questions, starting with the Director and Head of Risk Research and Development. Discussions with management continued into the new year until finally, fed up with what he perceived to be an attempt to sweep the issue under the rug, Ben-Artzi contacted the SEC on March 7, 2011 and called Deutsche Bank’s employee hotline four days later.
On March 17, Ben-Artzi met with Robert Rice, then Deutsche’s Head of Governance, Litigation & Regulation for the Americas who said there was an ongoing investigation into some of the issues Ben-Artzi had raised. Later that month, Ben-Artzi suffered through a lengthy meeting with Rice and William Johnson, Deutsche’s outside counsel.
What’s important to note here is that Bob and Bill (as Rice and Johnson are known to their friends) weren’t exactly strangers. As it turns out, they both worked in the U.S. Attorney’s Office for the Southern District of New York with Mary Jo White and Robert Khuzami.
After his first stint in public service, Khuzami went on to become General Counsel to the Americas at Deutsche and by the time Ben-Artzi reported his concerns to the government in 2011, Khuzami had moved on to become Director of Enforcement for the SEC. Mary Jo White would of course become SEC Chair in 2013, and almost two years to the day after Ben-Artzi first met with Rice, Bob would be named Chief Counsel to White.
As such, Ben-Artzi was (and still is) essentially squaring off against a tight-knit faction of former attorneys for the Southern District of New York who have managed to turn the SEC into an extension of Deutsche Bank, much as Goldman has turned the Fed into an extension of the Vampire Squid. As an aside, Deutsche’s General Counsel Richard Walker worked at the SEC for a decade and served as Director Of Enforcement from 1998 until his move to join the bank in 2001.
On May 12, 2011, Ben-Artzi sat down to discuss the issue further with Rice and Matt Spaulding (then global head of finance for Deutsche). Also in attendance were two employees from the corporate and investment bank, Stefan Schafer and Andreas Kodell, both of whom had come over from London.
Maybe it was the jet lag, or maybe it was the fact that Ben-Artzi was essentially threatening to expose a multi-billion dollar "error" in the way the bank was valuing its LSS book, but whatever the case, Schafer and Kodell weren’t happy. The two proceeded to give Ben-Artzi a rather sharp tongue-lashing for questioning the bank’s valuation of the trades.
In the process, Schafer and Kodell did shed some light on Deutsche’s previous attempts to evaluate their exposure to the gap option. Unfortunately, they were unable to explain why Ben-Artzi’s calculations were incorrect and Spaulding was similarly unable to justify the bank’s initial use of a 15% haircut or explain how the subsequent decision to adopt a reserve against the trades was in any way sufficient. Lars Popken, who was also in attendance, remained surprisingly quiet.
On May 23, in a meeting that included Sharon Wilson from HR, Rice said Deutsche Bank would be providing no further information into how it valued the trades and suggested Ben-Artzi contact an SEC attorney.
At the end of that month, Popken assured Ben-Artzi that despite the controversy, no retaliatory action would be taken by the bank.
Ben-Artzi began his leave of absence on June 30 and returned to work on October 19.
Less than three weeks later, he was fired.

* * *
Epilogue
If ever there was a story that exemplified virtually everything that is wrong on Wall Street surely this is it. Here we had one of the largest banks in the world by assets agreeing to facilitate leveraged bets in synthetic credit by Canadian special purpose entities which had virtually no equity whatsoever on their books. Deutsche knew the collateral for these bets came from the sale of commercial paper to clueless retail investors and pension funds, and not only did the bank not care, Deutsche actually encouraged the conduits to pile leverage on top of the posted collateral, creating an enormous amount of risk not only for the holders of the commercial paper, but for the bank itself. Deutsche then proceeded to guarantee the commercial paper in the event the market ceased to function only to refuse payment to noteholders when the market finally did collapse in August of 2007, leaving retail investors and pension funds out in the cold.
Meanwhile, the bank intentionally underreported its exposure by systematically refusing to model the gap option built into the trades and when someone honest finally came along and called them on their obfuscation, they summarily dismissed him.
Of course the punchline here is that convincing the SEC to acknowledge the sheer absurdity of the entire ordeal has been, and will continue to be well nigh impossible for the following reasons: 1) Robert Khuzami, the agency’s head of enforcement when Ben-Artzi’s complaint was filed, was Deutsche’s General Counsel to the Americas the entire time the bank was mismarking its LSS book, 2) Bob Rice, the SEC’s current Chief Counsel, was Deutsche’s Head of Governance, Litigation & Regulation during Ben-Artzi’s tenure at the bank, 3) the current SEC Chair, Mary Jo White, goes way back with both Rice and Khuzami as well as with Bill Johnson, Deutsche’s outside counsel at time of Ben-Artzi’s complaint, and 4) Deutsche’s current General Counsel worked at the SEC for 10 years, including a stint as chief enforcement officer.
In the end, all the boxes are checked. This story truly has it all: risky derivatives, leverage, the destruction of retail investors’ savings, hidden risk, the termination of honest employees, and the revolving door between Wall Street and the U.S. government.
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DB deals with whistle blowers in the age-old German tradition -- takes them out back and shoots them.
"... If ever there was a story that exemplified virtually everything that is wrong on Wall Street."
Actually, that story is the one about the creation of the Federal Reserve.
Not only is the entire banking cabal insolvent and dishonest, they are, as this shows, in denial. And that personality trait eventually causes self destruction.
No need to buy PM's, email your congressman, or "vote" some other platform to bring about change. The system will blow up of its own accord and malfeasance.
"This story truly has it all: risky derivatives, leverage, the destruction of retail investors’ savings, hidden risk, the termination of honest employees, and the revolving door between Wall Street and the U.S. government."
So..., business as usual is what you're saying...
(baseball, hotdogs, and apple pie..., move along, nothing to see here)
It is not denial. They know exactly what they are doing.
They are a SIFI and know that no matter what type of bullshit they employ, what type of bad loans, stipud moves, and huge losses they incur, they taxpayer via the Fed will bail theire shareholders out so that THEY do not incur any losses.
And who are their shareholders? The fucking billionaires mostly.
Acht du Lieber!
His name was Ben-Artzi Fartzi
His name was Ben-Artzi Fartzi
Is Deutsche Bank The Next Lehman Brothers?
"Deutsche knew the collateral for these bets came from the sale of commercial paper to clueless retail investors and pension funds..."
There are no clueless players in this game. They're only paid to be clueless.
Most of the money went directly into their pockets in the form of bonuses. They aren't doing this to improve their share price.
currency is money and credit is gold and currency is value and gold is barbarous and fed prints gold and dollar is in backwardation. the fed is dumping gold in the comex to suppress the value of currency. people are being paid in gold if they lend their precious fiat to the market
Lest anyone have forgotten, there was #7 of the top list of bank holding companies (see link), Taunus Corporation, owned by Deutsche Bank, of course:
http://www.andygause.com/index.php?option=com_content&task=view&id=246&Itemid=1
(And then there was that Alex Brown investment firm which ended up with all the money from those puts on 9/11, which was also owned by Deutsche Bank.)
Small world, huh?
Rayyyysisssttt!!!!!111!!!!
Truth is treason in an empire of lies. Just ask snowden.
Did his interview w/NBC's Brian Williams set any alarm bells off?
Manning is in jail.
And Hastings is dead.
Great quote but Snowden is not what he appears to be. Do you honestly believe that if our government really wanted him, they wouldn't be able to capture/acquire him? Controlled opposition is the term and his "intel" is weak at best; nothing one couldn't find out with a few keystrokes and a couple hours of time.
Truly Douche Bank.
DB is dirty.
He's lucky he didn't get the nailgun treatment a less senior person would have got.
Did he take the elevator down after the conference? Or the air-to-ground route ?
However, when the time comes, Diogenes of Sinope will greet this guy at the Pearly Gate.
The SEC is filthy.
Obama Has Sentenced Whistleblowers to 25 Times the Jail Time of All Prior U.S. Presidents COMBINEDhttp://www.washingtonsblog.com/2015/01/obama-imprisoned-whistleblowers-t...
And he still hasn't got his grubby mulatto fingers around Snowden yet.
Grubby KENYAN Mulatto fingers.
And pardons drug dealers.
The Official Handbook of Chicago's Way of Dealing with Snitches.
Wait! There was a huge article about Deutsche Bank being downgraded to junk bond status from S&P and Moody's- I don't see how DB can stop whistleblowing unless they do a Spain type deal as posted by ZH yesterday but the DB article posted below and the link clearly underscore that something is rotten along the Rhine.
"We now hold the view that Germany's enhanced and effective resolution framework has cast uncertainty over whether the government would provide extraordinary support to German banks," S&P said in a statement.
In a special reference to Deutsche Bank, the ratings agency said it considered the lender's ratio between its risk-weighted assets and its additional loss-absorbing capacity (ALAC) as "unlikely to be sufficient for a notch-up" in the next four years.
Deutsche Bank, the largest German lender, has struggled to restore an image tarnished by a raft of regulatory and legal problems. The financial institution has recently been facing probes into alleged manipulation of benchmark interest rates and derivatives, tax evasion and money laundering.
Last month, it was fined a record $2.5 billion (2.2 billion euros) for its involvement in manipulating the interbank lending rate Libor.
http://www.dw.com/en/deutsche-bank-hit-by-ratings-downgrade/a-18506422
Now that smarts. See, that's exactly where these fucks breathe; thru their Bond Rating Hole; that junk bond rating is going to leave a mark, fer shure.
Dishonest, criminally inclined, Germans who like to steal shit from other peoples countries !! I can't hardly believe it. Wait. Oh, yeah; there was that Nazi thing.
Free Corzine!!!!
I blame this on the free-loading Greeks.
/
(/s for the FR crowd)
Duke: The lights are growing dim Otto. I know a life of crime has led me to this sorry fate, and yet, I blame society. Society made me what I am.
Otto: That's bullshit. You're a white suburban punk just like me.
Duke: Yeah, but it still hurts.
-- Repo Man
Is Ben-Artzi a tribal name? Maybe why he has not gotten a nail gun.
Ben-Gurion, Ben-Veniste, is that a pattern I'm seeing?
Draw your own conclusions.
at least he didn't get nail gunned or airplane accidented.
Look, if people don't know by now that when you get hired by one of these banks you are being hired by the mafia then you deserve to suffer. I hate stupidity. This is why I left Merrill in July of 2002.
<--Not Surprised
<--All Lies
Wall St and the City are full of examples of good people getting shafted by groups of psychopathic wankers.
DB stole more than a grand from my FOREX account with them. All calls resulted is ....nothing....they did not even acknowledge they even had a NY Forex group.
This was 2010. Somewhere on the DB books is my unexplained (actually between one and three thousand dollars) money.
I'm sure one day they'll sort it out and send me a check......right? ...they will...won't they?
you have to assume you will get corzined if you do business with them.
Not sayin' it won't happen but I'd say those "old" GM bond holders have a better chance of being paid.
so Canada is not safe in the coming meltdown?
This story illustrates the point that most folks' money is gone; having been lied-to and stolen-from. The whole game now is to pretend the money is still there, by generating more thin-air money to appear to pay upon demand and to keep printing statements that their wealth is still there. Worked for Madoff, until it didn't. This is exactly what's happening in Greece. I get it. None of the thieves want to stop their pilfering, and definitely don't want to go to prison.
Its just too easy for them when its just digits on a screen. Thats all they are.An illusion.
Sooner or later they have to pay out for real,then SHTF.
When I was born here they didn't tell em that my birth came with a government ruled by banksters. Maybe they should let people know ahead of time.
when you father was born they did not tell him that JFK would have his head blown off for being a guy who knocked every girl who swam in the WH swim pool with him; including the bimbo of a mafia boss; and then because he riled the CIA by telling them for Bay of Pigs mess up they didn't deserve any oats nor boats and would be sent to Gitmo or its equivalent for being useless and even dangerous to humanity; that made him lot of enemies.
When your grandfather was born they didn't tell him he would have to fight in France and get his legs blown off.
When your son is born they won't tell him that the US is a place where the jail population equals the number of prostitutes in DC and the number of people on the dole added together.
So count yourself lucky your family jewels still work. If only you knew how to count you would head for Panama.
Needless to say, but there are still folks out there who actually believe that HR is there to help (employees). ROFL
I think the change started in the mid 80's when they changed from Personnel to Human Resources. We used to joke they made the nomenclature adjustment so they could start treating us all like commodities. Its now gone to the extreme having worked for a Pepsico company they acquired and then Pepsico I can tell you they are the worlds best at screwing over their employees. Maybe being treated like a commodity at this point would be an upgrade. They have tried to screw me out of my pension earned at the acquired company and it will be hell to pay at some point. Advice I got was to get a letter when I left on what my benefit was and when I was eligible to recieve it. Its my only defense as they now are insisting I cannot get what the plan provided.... The HR staff is their to screw you anyway they can and trust me they know who pays the bills and it ain't you.
The lawyers have seen to that.
A company has two dances these days, attempt to make a profit and attempt not to be sued by malcontents.
Notice the change a while back from Personnel Dept. to Human Resources. Human resources is a derogatory term basicly infering that those in the workplace are cattle and their labor is the resource.
edit: Didn't see KansasCrude's comment. Props to you!
Hope he doesn't accidentally commit suicide by shooting himself in the back of the head with his left hand.
I hope he won't double tap
Its not named human resources for nothing. You are a resource to be used and then discarded for a newer human
Great article.
Anyone who can still be surprised by the ubiquity of criminality is willfully ignorant and/or completely brain-dead. Open-season was reinstated (after a very brief mostly invented/imaginary for-public-brainwashing-only hiatus) on whistleblowers and anyone and everyone else who does not get with the program and follow the narrative at all times.
Are we to believe Dr. Ben-Artzi was ignorant, when he accepted his job offer, of the fact that Deutsche Bank was, well, a perfectly normal modern investment bank doing exactly what all investment banks do? This isn't Lake Woebegone Credit Union we're talking about, there is a limit to ignorance as defense.
Banks are as crooked as the mob? You don't say. The criminality is so in-your-face, so constant, so ever-present, it can no longer be defined as criminality, because criminality, by definition, must be a perversion of and departure from the normal course of thing/state of affairs.
PS: $5 billion is chump change -Yellen
I think given his whistle blowing you have to give him the benefit of doubt. While the notion the TBTF banks are rife with corruption and crooked as a snake has gained traction I would believe 3-4 years ago that was NOT the pervasive opinion. A math major would have been most likely a bit removed from the actual criminal behavior they just crunch the nums and see what works.....
Benefit of the doubt, my ass. Banking is a filthy, corrupt, fraudulant, criminal industry and ANYONE associated with it is a piece of shit and deserves exactly what is coming to them.
I know a young kid who is in banking. He went to a top college. Worked a nightmare internship at a big bank. His dream was to rise up fast with ambition and nutty hours... make a killing... and retire early. This is the image the "investment banking" that has formed. Rock stars to those who are willing to overlook the moral hazard.
Funny thing though. The banks are chewing these young kids up and spitting them out.
Perhaps he saw Fun with Dick and Jane...
https://www.youtube.com/watch?v=pjVkwX5Yt2Y
The whole damn lot of em' can burn and I wouldn't give a flying rat's ass. Right on down the line.
"Hans? Into the cooler with you Hans!"
He worked for the Devil and was surprised to get burned? Shocker.
If a whistleblower is not being thrown in jail, murdered or rendered permanently unemployable then it's not all that bad. Shit, I've had the security escort just for quitting a job.
Not too long ago I was putting in notice at a job and at first they think I'm joking. Next they are asking me to extend my notice two months and I agree. A couple of hours later I am getting paraded through two facilities by a double security escort to retrieve my things. After this they proceed to follow me to my vehicle on foot to where there is a security vehicle waiting to follow me completely off of the property.
Good times
Did you get paid for the extra 2 months?
He was lucky to be escorted out a door, and not a window.
Or...as other will say....NAILGUN!
You can never call the squid a squid to its face and then expect to live upon the largesse of the squid. This guy is lucky to be alive.
There is virtually nothing in this story that any other bank - or government - would not also do. This is your corruptocracy at work.
if you're going to go after these fuckers, you need to make copies of all their nefarious transactions, and record their conversations and store them in several safe places.
Then you hire good council, and speak with all the national media outlets you can find. Once you have your ducks in a row, you expose the den of thieves pubicly, because they're going to try and litigate and discredit you irregardless.
At least you're out in front of the court of public opinion.
Everything about the 2008 financial crisis, and indeed the modern Euro crisis, indicates that the banks control (not merely influence through elections) the government, and not the other way around.
Douche Bank will likely be the next TBTF to actually fail like Lehman Bros., frankly.
NOTE TO: Wall Street, if you cheat CANADA, or Canadians, I will waterboard you, and you will experience extraordinary rendition, GITMOesque George Bush American Psychological Torture Association like discomfort, and a stint in Hell & Purgatory for your entire ancestry that will last for eternity, motherfuckers.
Don't make me have to come down there and slap you upside your head, Wall Street.
Plus, Bay Street doesn't like the competition.
At least he wasn't wacked like Nickey in Casino.
Bank stress test, it's just all one big publicity stunt con game. The valuation of banks' junk bonds holdings -- it's all bloody subjective and sheeple believe these craps.
Another evil bankster institution.
To be fair, he does look kind of gormless. He did realise he was working at a bank?
why they did not kill him and make it look like a suicide shocks me?!? SEC is a joke, these Banks steal billions and some of them get caught and pay a couple of millions in fine, chump change.. Then business resumes like usual!
When you work for an opaque glass firm, you shouldn't throw stones of truth.
The good, news, Ben-Artzi may have dodged a guillotine by not continuing to work for the bankster grifters.
Liberty is a demand. Tyranny is submission..
Nice to know that this bank with derivative exposure equalling about the entire world's GDP, is honest and forthright. It is also encouraging to learn that our SEC is staffed with experienced people who are impartial.
I keep wondering if the Greek situation may cause the first link in the chain of derivatives to snap???
so what exactly?
The real crime is that the bank makes money out of thin air at interest that can never be repaid. Even if in retirement we become "debt-free", it is only because we have offloaded the exponentially rising debt to the next generation. This is the sin that the banks practice on us.
Goldmine calls theirs 'human capital management'
I do not know why, but it just strikes me so odd. Is there a gorilla capital management? As opposed to human cattle management?
I guess it is all pc and good with the rainbow.
The last place I was at called it P.I.E. -- People Innovation Engineering, and no, it wasn't Skynet.
DB's investors and clients are so asinine that this poster boy of what is the worse that exist in the annals of risk management still have not yanked their monies out. Are there really no alternatives ?
Taxpayers are merrily supporting this worst brand of banksters.
This comes at no surprise. They make GS smell like a rose.
Take 3 MO off for your wife to have kid you're fired!