A whistleblower whose information helped reveal false accounting at Deutsche Bank has turned down a huge financial reward from the Securities and Exchange Commission in protest of failure to punish wrong-doing executives at the bank.
Eric Ben-Artzi, a former Deutsche risk officer, told the SEC that he does not want to take his share of a $16.5m payout awarded for the information that resulted in a fine on the German lender of $55m last year.
His awarded was 15 per cent of the fine imposed after he informed regulators that his colleagues at the bank had been inflating the value of its massive portfolio of credit derivatives.
The fine was levied after the SEC found Deutsche had misstated its accounts during the financial crisis "by improperly valuing a giant derivatives position", according to the Financial Times.
Ben-Artzi, clearly unimpressed, said the fine should be paid by executives and not shareholders, and put the ball in the SEC's court by stating the "revolving door" of senior personnel between the agency and the German bank was an overwhelming factor in executives going unpunished.
"This goes beyond the typical revolving-door story. In this case, top SEC lawyers had held senior posts at the bank, moving in and out of top positions at the SEC even as the investigations into malfeasance at Deutsche Bank were ongoing," he said.
Ben-Artzi explained that Robert Rice, the chief lawyer in charge of the internal investigation at Deutsche in 2011, became the SEC’s chief counsel in 2013. Robert Khuzami, Deutsche’s top lawyer in North America, became head of the SEC’s enforcement division after the financial crisis. Their boss, Richard Walker, the bank’s longtime general counsel (he left the bank this year) was once head of enforcement at the SEC.
In an opinion piece at the FT titled "We must protect shareholders from executive wrongdoing", Ben-Artzi wrote: "Deutsche did not commit this wrongdoing. Deutsche was the victim. To be precise, the bank’s shareholders and its rank-and-file employees who are now losing their jobs in droves are the primary victims.
"Meanwhile, top executives retired with multimillion-dollar bonuses based on the misrepresentation of the bank’s balance sheet. It is therefore especially disappointing that in 2015, after a lengthy investigation helped by multiple whistleblowers, the SEC imposed a fine on Deutsche’s shareholders instead of the managers responsible."
Ben-Artzi was one of three whistleblowers in 2010-11 who reported improper accounting internally and to regulators around the globe.
Unfortunately, Ben-Artzi said that while he would not be taking any money, he was not able to reject parts of his award — accounting for the majority of the $8.25m — that were claimed by his ex-wife, lawyer or outside experts who worked on his submissions to the SEC.