Deutsche Bank has agreed to pay nearly $75m in a settlement relating to charges of impropriety concerning pre-released American depositary receipts (ADRs). This practice involves ADRs being released without the deposit of the related foreign shares. The Securities and Exchange Commission (SEC) discovered that Deutsche Bank included abusive activities such as inappropriate short-selling that enabled the bank to carry on trading in the absence of corresponding foreign shares. SEC found that Deutsche Bank Trust and Deutsche Bank Securities breached this system by allowing pre-released ADRs to be made available even when neither the broker nor its customer had the necessary shares in place over a five-year period. The latter was found to have failed to detect and prevent securities law breaches in over 850 transactions during three years. Similar charges were filed by SEC last year against ITG and Banca IMI Securities.
This settlement came after the ruling of the US District Judge Jed Rakoff allowing lawsuits to proceed against Deutsche Bank and JPMorgan Chase. The suits are related to the facility that banks provided to convicted sex offender Jeffrey Epstein’s sex-trafficking operation, filed under the Trafficking Victim Protection Act. The plaintiffs alleged that banks ignored red flags to profit from Epstein’s business. Deutsche Bank was Epstein’s client until 2018, after the allegations against him had come to light.
The compensation, undisclosed, will be made to Epstein’s alleged victims, with sums ranging from $75,000 to $5m. Additionally, Deutsche Bank has committed to investing $800m in technology to counter money laundering. The settlement will allow the bank to avoid criminal charges.
The bank’s failure to monitor account activities related to Epstein and other high-risk clients had tarnished its reputation. However, the settlement and the investment in technology to combat money laundering, which aligns with the Bank’s 2022 strategy, indicate that Deutsche Bank intends to move forward by addressing issues and implementing solutions.
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