Deutsche Bank: Rates to Suit the Book, Orders to Move the Market

Deutsche Bank’s CFTC LIBOR case brought an $800 million civil penalty against Deutsche Bank AG from the Commodity Futures Trading Commission over benchmark manipulation allegations. A separate spoofing case brought a $30 million civil penalty against Deutsche Bank AG and Deutsche Bank Securities Inc. over precious-metals trading and supervision allegations. Behind those CFTC enforcement outcomes were requests for favorable rates, orders allegedly placed to mislead other traders, and surveillance alerts that the CFTC said went unanswered. Someone inside the business could see the instruction behind the number on the screen.

Deutsche Bank CFTC LIBOR and Spoofing Conduct Dates

The Deutsche Bank CFTC spoofing conduct dates were at least February 2008 through at least September 2014 in the January 29, 2018 precious-metals order. The April 23, 2015 LIBOR and Euribor order addressed conduct from at least 2005 through early 2011.

The benchmark order named Deutsche Bank AG. The metals order addressed that bank’s traders and the supervision of Deutsche Bank Securities Inc., the futures commission merchant through which they executed and cleared their trades. Deutsche Bank’s London subsidiary entered the separate LIBOR guilty plea.

LIBOR Submissions That Served the Trading Book

The Commodity Futures Trading Commission alleged that Deutsche Bank used LIBOR and Euribor submissions to favor trading positions instead of reporting an honest assessment of borrowing costs. The alleged benchmark manipulation reached U.S. dollar, yen, sterling and Swiss franc LIBOR, as well as Euribor, across offices including London, Frankfurt, New York, Tokyo and Singapore.

During the period at issue, panel banks submitted rates used to calculate the daily benchmarks. For LIBOR, the highest and lowest submissions were removed and the remaining rates averaged. The submission was supposed to represent the rate at which a bank could borrow unsecured funds. Euribor used a similar submission-and-averaging process for lending between prime banks in the euro interbank market.

These rates fed interest rate swaps, futures and other financial contracts. The bank’s own positions could gain or lose as the benchmark changed. A submission therefore had two audiences: the market relying on the benchmark and a trading desk with money riding on its direction.

The agency alleged that Deutsche Bank put those interests together. Its pool traders managed cash funding but also held derivatives books, and some were benchmark submitters. After the bank merged its pool trading and money market derivatives desks in 2006, London derivatives traders sat beside or near cash traders responsible for LIBOR submissions. Managers encouraged communication about positions across offices. According to the order, requests for favorable rates traveled through chats and internal messages, and traders sometimes shouted them across the floor.

Under its deferred prosecution agreement, Deutsche Bank AG admitted that traders requested favorable submissions from submitters at Deutsche Bank and other banks, and that the conduct affected the resulting LIBOR fix on various occasions. The bank also admitted coordinating with other banks to rig Yen LIBOR contributions. The Justice Department’s account of the agreement quotes a U.S. dollar LIBOR submitter’s March 22, 2005 message to a trader in New York:

A benchmark submission offered as a favor. We see a rate other people trusted being offered to the desk as something it could order ahead. In its separate guilty plea, Deutsche Bank’s London subsidiary admitted conduct in which derivatives traders sought submissions favorable to their trading positions.

A Conflict the CFTC Said Was Built Into the Desk

The Commodity Futures Trading Commission alleged that Deutsche Bank let submitters trade positions tied to the same benchmarks they helped set, without controls adequate to keep those interests apart. According to the order, some submitters knew the desks’ preferred rates so well that they built the trading bias into submissions even without a fresh request.

That makes the desk’s organization part of the evidence. The relevant records include who submitted a rate, who held the position it favored, and what managers encouraged.

The control failures continued after the CFTC’s Division of Enforcement requested an internal investigation in April 2010, according to the order. The agency said meaningful improvements came in mid-2011, while a formal policy on conflicts between traders and benchmark submitters followed in February 2013.

What Is an Example of Commodities Fraud?

The Commodity Futures Trading Commission’s precious-metals allegations against Deutsche Bank describe an example of commodities fraud in which traders displayed orders they intended to cancel to draw other participants into trades they actually wanted. The order concerned gold, silver, platinum and palladium futures and traders in New York, London and Singapore.

The alleged spoofing sequence began with a smaller resting order on one side of the market. The trader then placed larger orders on the opposite side to create an appearance of buying or selling interest. Other participants were meant to react and fill the resting order. The large orders were canceled after the desired fill or when the risk of their own execution became too high.

The resting orders were often iceberg orders, which display only part of a larger order. In the CFTC’s account, the traders limited the visible size of the trade they wanted while exaggerating interest on the other side. The apparent depth on the screen was part of the lure.

The order also described traders helping colleagues across desks and offices get orders filled. In a June 6, 2011 chat quoted by the CFTC, one trader explained the technique to a trader at another financial institution:

The same order alleged a separate practice involving customer stop-loss orders. Those orders become market orders when a specified price is reached. The agency alleged that a Deutsche Bank trader coordinated with a trader at another institution to push prices to those levels, then benefit through proprietary trading at the customers’ expense. Customer instructions became targets for the desk.

Surveillance Alerts the CFTC Said Went Unanswered

The Commodity Futures Trading Commission alleged that Deutsche Bank Securities Inc. had an electronic surveillance system that identified several hundred instances of potential spoofing, yet the firm failed to follow up on the majority. Policies prohibited manipulation and spoofing, and employees received training. The alleged failure was in acting on what the system found.

The order also credited Deutsche Bank’s later cooperation. During the CFTC investigation, the bank conducted its own internal investigation, disclosed spoofing it uncovered, identified relevant documents and their sources, and helped analyze trading data. The Commission expressly recognized that cooperation and remediation through a substantially reduced civil penalty. We see an odd bargain: the firm allegedly ignored its own warnings, then earned a discount for helping investigators.

For someone in surveillance, the alert and the response belong in the same story. The trading sequence shows what was flagged. The follow-up shows what the firm did with that warning.

ISDAFIX Was Another Benchmark Case

Deutsche Bank Securities Inc. separately agreed to a $70 million civil penalty in the CFTC’s February 1, 2018 ISDAFIX order. That action concerned alleged attempts to manipulate U.S. dollar ISDAFIX from at least January 2007 through May 2012.

ISDAFIX supplied a reference for the fixed interest rate on a swap and was used to settle cash-settled options on interest rate swaps. The agency alleged that traders tried to favor their positions through false submissions and trading around the critical 11:00 a.m. fixing. The reference snapshot could be influenced through transactions in swap spreads and U.S. Treasuries before panel banks submitted their rates.

The order alleged that supervisors took no corrective action when an attempted manipulation was brought to their attention. It is another example of the gap between receiving a warning and changing what the desk does.

The Later Reporting and Futures Cases

The CFTC’s June 18, 2020 announcement described two further settlements involving different Deutsche Bank entities. Deutsche Bank AG agreed to a $9 million civil penalty over swap reporting, supervision and business-continuity allegations. A reporting-platform outage beginning April 16, 2016 had left the bank unable to report swap data across multiple asset classes for five days, according to the agency.

Deutsche Bank Securities Inc. separately agreed to a $1,250,000 civil penalty over alleged Treasury and Eurodollar futures spoofing by two Tokyo-based traders from at least January through at least December 2013. This was a different futures episode from the precious-metals conduct.

Can CFTC Prosecute Criminal Violations?

The Commodity Futures Trading Commission brings civil and administrative enforcement actions. The Justice Department brings criminal prosecutions.

The separate criminal prosecutions of two former Deutsche Bank employees ended in acquittals on all counts, as the Justice Department’s updated announcement records. In January 2022, the Second Circuit reversed their convictions because the proof of falsity was insufficient and directed acquittals.

What Evidence Is Required to Prove Fraud?

We help insiders connect the instruction with the submission or order, the position it favored and the people controlling those decisions. The LIBOR message supplies a request and a willing submitter. The metals order pairs trading sequences with chats explaining what the traders wanted to accomplish. The supervision allegations add the alerts and what followed them.

A 2016 analysis in Futures & Derivatives Law Report, The Exercise of Anti-Spoofing Authority in U.S. Futures Markets: Policy and Compliance Consequences, emphasizes intent and market context, including trading patterns and whether orders filled. Applied to the Deutsche Bank allegations, the useful connection is between the orders on both sides and the message explaining whose trade they were meant to help.

The industry’s transaction records include filled, unfilled and canceled orders, along with communications leading to execution. A trader may understand the position. A submitter may know why a rate changed. A surveillance employee may know who received an alert and what happened afterward. We work with that knowledge to connect records that otherwise tell only part of the story. We also assess potential cases for market participants who saw the pattern from outside the bank.

Insider explanations can change an investigation. In a separate, anonymized CFTC award decision, a whistleblower’s explanation of a trading position helped a federal regulator obtain admissions from a company witness. Understanding why a position benefited can matter as much as finding the trade.

The CFTC program provides awards totaling 10% to 30% of monetary sanctions collected for eligible whistleblowers. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know Why the Desk Wanted That Trade

If you know why a benchmark submission changed, what a trader wanted canceled or where surveillance warnings went, speak with our whistleblower experts. We build the trading story with you, bring in CFTC whistleblower lawyers who understand benchmark and futures cases, and stay beside you through every step of building your strongest CFTC whistleblower case.