New Jersey AG: Deutsche Bank’s ‘Manipulations’ Hurt EDA, Retirement Funds

The Garden State has agreed to a $220 million, multi-state settlement with Deutsche Bank that resolves allegations of fraudulent and anti-competitive conduct involving the bank’s alleged manipulation of the London Interbank Offered Rate (LIBOR), a benchmark interest rate that has a widespread impact on global markets and consumers, New Jersey Attorney General Christopher Porrino announced Wednesday.

According to Porrino, a half-dozen government agencies and other entities in New Jersey, including the New Jersey Economic Development Authority (EDA), were harmed by Deutsche Bank’s manipulations.

Other New Jersey agencies that suffered as a result of Deutsche Bank’s "manipulations" – each of which will receive restitution under the settlement - include the New Jersey State Universities Retirement Fund, the New Jersey Common Pension Fund, the New Jersey Carpenters Annuity Fund, the New Jersey Transit MST Retirement Trust and the Hudson County Improvement Authority, prosecutors said.

According to the NJOAG:

“A multi-state investigation of Deutsche Bank’s conduct found that Deutsche Bank acted improperly with respect to LIBOR in a number of ways. For example, Deutsche Bank employees improperly made internal requests for LIBOR submissions to benefit Deutsche Bank’s own trading positions. Deutsche Bank also sought to influence other banks’ LIBOR submissions in a manner intended to benefit Deutsche Bank’s trading positions, and received communications from inter-dealer brokers and external traders attempting to influence Deutsche Bank’s LIBOR submissions. At times, Deutsche Bank LIBOR submitters and supervisors expressly acknowledged and indicated they would work to implement the requests they received.”

Prosecutors continued:

“Given this conduct, Deutsche Bank LIBOR submitters and management had strong reason to believe that Deutsche Bank’s and other banks’ LIBOR submissions did not reflect their true borrowing rates - as they were supposed to do in accordance with published guidelines - and that the LIBOR rates submitted by the banks did not reflect the actual borrowing costs of Deutsche Bank and other panel banks.”

Prosecutors added:

“Deutsche Bank employees did not disclose these facts to the governmental and not-for-profit counterparties with whom Deutsche executed LIBOR-referenced transactions, even though these rates were material terms of the transactions.”

As a result, several government entities and not-for-profit organizations in New Jersey and throughout the U.S. were defrauded of millions of dollars when they entered into swaps and other investment instruments with Deutsche Bank without knowing that Deutsche Bank and other banks on the U.S. dollar-LIBOR-setting panel were manipulating the LIBOR, prosecutors charged.

Governmental and not-for-profit entities with LIBOR-linked swaps and other investment contracts with Deutsche Bank will be notified if they are eligible to receive a distribution from a settlement fund of $213 million. The balance of the settlement fund will be used to pay costs and expenses of the investigation and for other uses consistent with state laws, prosecutors stated.

Deutsche Bank has cooperated with the ongoing, multi-state investigation, prosecutors said.

“This is an important settlement, not only for the potential recovery it provides for government entities and non-profit organizations that were harmed by the actions of Deutsche Bank, but also for the message it sends: that when institutions manipulate financial markets for their own self-serving, profit-driven reasons, they will be held accountable,” Porrino said.

Send local news tips and feedback to eric.kiefer@patch.com

Photo: Shutterstock