Deutsche whistleblower spurns share of $16.5m award in SEC protest
A whistleblower who helped expose false accounting at Deutsche Bank has turned down a multimillion-dollar award from the Securities and Exchange Commission in protest against the agency’s failure to punish executives at the bank.
Eric Ben-Artzi, a former Deutsche risk officer, has told the SEC he is declining his share of a $16.5m payout — the third largest in the whistleblower programme’s history — awarded for information that led the agency to fine Deutsche Bank $55m last year. The SEC found Deutsche misstated its accounts at the height of the financial crisis by improperly valuing a giant derivatives position.
Mr Ben-Artzi said the fine should be paid by individual executives, not shareholders, and suggested the “revolving door” of senior personnel between the SEC and Germany’s largest bank had played a role in executives going unpunished.
“This goes beyond the typical revolving-door story,” Mr Ben-Artzi wrote in an opinion article for the Financial Times. “In this case, top SEC lawyers had held senior posts at the bank, moving in and out of top positions at the SEC even as the investigations into malfeasance at Deutsche Bank were ongoing,”
The SEC, citing confidentiality, and Deutsche Bank also declined to comment.
The award determination, which was made in July but has not been previously disclosed, allocated $8.25m each to Mr Ben-Artzi and Matt Simpson, a former Deutsche trader, who both applied for it, according to interviews and documents seen by the FT.
A third former employee, who contacted the SEC in 2010 and provided evidence of improper valuations in the derivatives book, also applied and was not deemed eligible for an award. Several later claims were also denied.
There has been a substantial number of Deutsche Bank executives who have moved in and out of the top echelons of the SEC in recent years.
Robert Khuzami, director of enforcement at the SEC between 2009 and 2013, was Deutsche’s former general counsel for the Americas. Between 2004 and 2013 Robert Rice was a senior lawyer at Deutsche Bank, where he led an internal investigation into the valuation claims; he then went to the SEC as chief counsel.
Both Mr Khuzami and Mr Rice were recused from the investigation. Dick Walker was enforcement director at the SEC between 1998 and 2001 and then joined Deutsche, later becoming general counsel; he left the bank this year. All three declined to comment.
This dispute offers a rare window on to the mechanics of the programme, which is shrouded in secrecy. It is believed to be the first time a whistleblower has refused an award since the programme went into effect in 2011. It allows for 10 to 30 per cent of any fine collected by the agency to be paid to those who bring original information that leads to an enforcement action. The award comes from a separate congressional budget allocation, rather than directly from the fine payment.
David Kovel, an attorney for the third whistleblower, who has requested anonymity, said he believed it was a “mistake” to leave his client off the award list.
“We think this is like Harry Markopolos, who reported the [Bernard] Madoff fraud to the SEC and was ignored,” said Mr Kovel, of the New York law firm Kirby McInerney. “Here, the SEC had the information about fraud from my client in 2010 and either they didn’t do anything with it or they are pretending they didn’t. From our perspective, what the SEC has done doesn’t make a lot of sense.”
Christopher Chang, a lawyer for Mr Simpson, said his client was “very grateful for the award and the tremendous effort by the SEC in investigating this matter. But beyond the dollars and cents, the real value of the award to Matt is what it represents and that is complete and unequivocal vindication.”
Mr Ben-Artzi said that although he would refuse to take any money himself, he was not able to reject parts of his award — accounting for the majority of the $8.25m — that were claimed by his ex-wife, lawyer or outside experts who worked on his submissions to the SEC.