Deutsche Bank AG is a large and complex institution. While one unit of the giant bank was packaging worthless subprime mortgages and selling them to unsuspecting institutional investors, another unit was acting as trustee for the toxic securities and foreclosing on tens of thousands of residential properties across the US, forcing an unprecedented number of Americans from their homes. But it turns out that yet another DB unit was investing the client funds on highly risky securities, without disclosing the risk. Now the bank will have to answer in court:
Cambridge’s Akamai Technologies is still trying to get back $217 million it claims was “wrongfully invested” by a major bank in now “toxic” bonds that have been frozen since the financial crash two years ago.
The Internet traffic-management company filed a federal lawsuit Friday against Deutsche Bank. Akamai claims the German financial giant’s investment-advisory unit misled the tech company about auction-rate securities with a “charade of safety and liquidity.”
The entire complaint makes for fascinating reading. There is more than enought evidence that DB was well aware of the risks but deliberately concealed this from Akamai. Here is the relevant graph from the law suit:
But Deutsche Bank did not reveal these risks to Akamai. Nor did Deutsche Bank disclose to Akamai that the liquidity of the ARS market was being artificially supported by Deutsche Bank and other financial institutions, which were secretly propping up the ARS market. As one means of covertly supporting the ARS market so that it would appear to investors to be safer than it actually was, Deutsche Bank and other financial institutions were party to or aware of secret side deals with ARS issuers to ensure that auctions did not fail due to lack of demand. In addition, through strategic and undisclosed bidding in ARS auctions, Deutsche Bank, as well as other financial institutions, sought to set artificially low rates for ARS in order to make the securities appear less risky and more liquid than they actually were. Deutsche Bank thereby perpetuated the illusion that the securities were fully liquid, even when it knew demand for ARS was waning. Customers like Akamai thus remained unaware of the increasing liquidity risk that ARS posed.
Akamai is seeking all the money back, plus interest and court costs. Akamai says it would welcome criminal charges in this case of massive fraud.
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