CFTC Charges Former Deutsche Bank Trader With Fraudulently Mismarking Swaps - Division Of Enforcement Also Issues Declination Letter To Deutsche Bank In Recognition Of Its Self-Reporting, Full Cooperation And Remediation
The Commodity Futures Trading Commission (CFTC) announced today that it filed and settled charges against Jacob Bourne, a former managing director of Deutsche Bank Securities Inc., for fraudulently mismarking swap valuations to conceal significant trading losses. The CFTC Order requires Bourne to pay a $350,000 civil penalty and permanently bans Bourne from trading on exchange and seeking registration with the CFTC, among other prohibitions.
In connection with this action, the Division of Enforcement also issued its first public declination letter to Deutsche Bank AG and Deutsche Bank Securities Inc. (Deutsche Bank or the Bank) stating it is closing the related investigation into Deutsche Bank based, in part, on the Bank’s actions to identify the fraudulent activity, self-report the activity to the CFTC, fully cooperate, and proactively remediate.
“Effectively combating fraud and manipulation in the global derivatives markets necessitates a strong working relationship between international regulators,” said CFTC Chairman J. Christopher Giancarlo. “That is why the CFTC is grateful to have an open line of communication with BaFin [Bundesanstalt für Finanzdienstleistungsaufsicht] about this case, and others. We will continue to prioritize cooperation with our international partners, and are appreciative of BaFin’s readiness to engage with the CFTC.”
James McDonald, CFTC’s Director of Enforcement, said, “With this action, the Commission shows its continued commitment to holding accountable those who engage in misconduct in our markets. Today, we also recognize once again the concrete benefits of self-reporting, cooperating, and remediating. The self-report here allowed the Commission to hold the responsible individual accountable. Notably, Deutsche Bank’s self-report stemmed from its discovery of the issue through its existing compliance program and internal controls. And the self-report was accompanied by full and proactive cooperation and remediation. All of these factors contributed to our decision to decline to recommend charges against Deutsche Bank.”
The CFTC Order against Bourne finds that from June 15, 2017 to at least July 6, 2017, Bourne mismarked the valuations for inflation swap instruments in an attempt to hide from Deutsche Bank estimated trading losses of more than $16 million. In doing so, Bourne ignored Deutsche Bank’s policy dictating the method for entering end-of-day marks into an internal spreadsheet used for internal asset valuations, according to the Order. The Order also finds that after bank confronted Bourne about the discrepancies, Bourne attempted to conceal his misconduct by altering historical versions of the internal spreadsheet to create the appearance that he had complied with the policy. The mismarked swaps were ultimately reported to swap counterparties and to the CFTC. The Order finds that this conduct constituted fraud under the federal commodities laws.
Also today, the Division of Enforcement notified Deutsche Bank that the CFTC’s related investigation of the Bank is being closed. In its declination letter, Enforcement notes that its decision to close the investigation was based on a number of factors, including the Bank’s (1) timely, voluntary self-disclosure of the matters described above, which the Bank discovered itself as part of its compliance program; (2) full cooperation (including its provision of all known relevant facts about the individuals involved in or responsible for the misconduct); and (3) proactive remediation efforts directed at strengthening and enhancing the Bank’s swap valuation process.
The CFTC Division of Enforcement staff members responsible for this case are Amanda Burks, Kara Mucha, Alison Wilson, James H. Holl, III, and Rick Glaser.