Deutsche Bank accused of being involved in a “massive” Ponzi scheme

Posted on Jul 23, 2021 at 7:42 PMUpdated on Jul 23, 2021, 7:47 PM

Another blow for Deutsche Bank. According to information gathered by Bloomberg, Germany’s largest bank is accused of turning a blind eye for several years to a Ponzi scheme involving fraudulent investments in Florida.

It was the liquidators of two funds based in the Cayman Islands, now bankrupt, who sued Deutsche Bank in courts in New York, as well as in Florida. The court files filed by the liquidators accuse the German bank of having allowed a “large-scale theft”, causing millions of dollars in losses.

One of the two complaints was filed in 2020 by the judicial liquidators of Madison Asset LLC. The second was filed at the beginning of July by the liquidators of a group of companies named Biscayne, which has invested in real estate in Florida.

A well-oiled Ponzi scheme

The fault of Deutsche Bank? To have protected the accounts of certain entities involved in a Ponzi scheme, despite multiple warnings and sanctions from the American financial markets authority targeting the two funds based in the Cayman Islands. The complaint also states that the bank failed to comply with its own anti-money laundering rules.

Concretely, Madison Asset and Biscayne would have used front companies as well as accounts affiliated with Deutsche Bank in order to camouflage important debts. These manipulations would have made it possible to raise financing from investors to bail out companies deemed insolvent. The new money thus collected was also used to repay debts and previous investors. The funds have also benefited the instigators of the financing package themselves, said the US authorities.

Deutsche Bank denies outright

“These allegations lack credibility and we will continue to defend ourselves vigorously,” responded a spokesman for Deutsche Bank in an email quoted by Bloomberg.

For several years, Deutsche Bank has been embroiled in various accusations of negligence, including the checks that the bank is supposed to carry out internally. The German group has also recently had to spend billions of dollars to close civil and criminal cases.

More recently, the German bank had been accused of fraudulent sales in Spain. The US Federal Reserve had imposed sanctions on Deutsche Bank, while the German financial authority, BaFin, had broadened the powers of the anti-money laundering officer it had installed within the group.

Insufficient anti-money laundering control

The two complaints against the two failed funds highlight Deutsche Bank’s recurring inadequacies in terms of anti-money laundering control, Bloomberg says.

Two people involved in the operations of the Cayman Islands-based funds, including the one who opened an account at Deutsche Bank for the Madison fund in 2014, have already pleaded guilty to money laundering.

According to one of the complaints, employees of Deutsche Bank had warned their superiors in 2016 of “suspicious activity” on the accounts in question, but the bank has not taken a decision to definitively resolve the problem. Worse: according to the liquidators, Deutsche Bank continued to offer its services to the two Cayman Islands entities, despite a formal notice from the US financial markets authority against the two funds.

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