By Parth Parikh
Money and Investing Writer
Deutsche Bank (NYSE: DB) has been involved in its share of controversies over the years. Just when you think matters could not get worse for the German bank, something new appears and adds a blemish to the already-tarnished reputation of one the world’s most significant banks.
Ranging from espionage to the Libor rate scandal to the 2008 financial crisis, Deutsche Bank has a hand in everything and to this day, continues to pay the fines and settlements resulting from those incidents. The new event that has Deutsche Bank in the spotlight again is a currency rigging lawsuit that was recently upheld after the bank tried to dismiss the case.
The incident at hand began in 2003, when investors made foreign exchange trades on the marketplace using Deutsche Bank’s “Autobahn” platform and other electronic communications networks by other banks. Many investors lost money in these trades over the years, while banks like Deutsche Bank grew bigger and bigger in its foreign exchange practice.
After going over their preliminary research and findings to find out why so few investors were able to make money on the “Autobahn” program, one of the more notable investors, Axiom Investment Advisors LLC, helped file a lawsuit against Deutsche Bank and Barclays Plc in two separate cases.
The lawsuit claims that while both banks did create a trading platform for investors to use and give them a place to make trades, the programs were created with algorithms that would intentionally delay rapid foreign exchange trades by a few tenths of a second.
Using that time, Deutsche Bank and Barclays employees would either accept or decline trades based on whether they were satisfied with the terms or they would stall the trade from occurring and process the trade when the price moved, resulting in more losses in profits for investors.
This job is called getting a “last look” because the banks would get a view and a sense of where the exchange rates would go based on the trades and almost simultaneously, negatively affect the investor’s trade while benefitting on theirs. Investors who felt they were cheated by the large bank are coming out in droves to voice their opposition, with around millions of dollars lost by the investors using this “Autobahn” program.
What brought this situation to the forefront was Deutsche Bank’s attempt to dismiss the case in court. Last year, Barclays paid their dues in the form of $50 million to the investors, while Deutsche Bank’s case was never heard. The judge in this case, Lorna Schofield, decided that the investors group, led by Axiom Investment Advisors, have the right to claim a breach of contract with Deutsche Bank. As part of her ruling, Schofield mentioned how the terms that Axiom and Deutsche agreed upon never mentioned whether Deutsche could get a “last look” at the trades before sending them into the real market and that since Axiom was not aware of the algorithms used in the “Autobahn” platform because that agreement was made between the bank and the operators who helped create the algorithms, there might be a potential breach of contract within the Axiom and Deutsche deal.
This unfortunate event can only be categorized as another dark moment in Deutsche Bank’s recent history and this pending court case might tell us if this is the last dilemma we see from the German bank or if there are more on the horizon.
A version of this article appeared in the Tuesday, February 21st, 2017 print edition.
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