Deutsche Bank will pay $26.3 million to settle shareholders’ claims that it was light on oversight in doing business with “unsavory figures” like convicted sex offender Jeffrey Epstein, and that doing so caused its share price to drop.
Shareholders led by Yun Wang and Ali Karimi allege in the suit, filed in 2020, that Deutsche Bank “materially failed to implement effective [anti-money laundering and know-your-customer] controls,” particularly in its wealth management business, which “caters to the very rich.”
The suit claims that confidential witnesses within the bank’s compliance function alleged that bank executives and management “routinely overruled compliance staff so that the Bank’s wealth management business could commence or continue relationships with high-risk, ultra-rich clients, such as Russian oligarchs, the convicted sex trafficker Jeffrey Epstein, founders of terrorist organizations, people associated with Mexican drug cartels, and people suspected of financing terrorist organizations.”
The bank went on to “materially misrepresent” its anti-money laundering (AML) and Know Your Customer (KYC) processes, resulting in the artificial inflation of its stock price, according to the suit. As issues emerged and its list of clients went public, its share price tumbled, diminishing hundreds of millions of dollars in market capitalization.
The all-cash settlement filed in federal court in the Southern District of New York (Manhattan) Friday must be approved by U.S. District Judge Jed Rakoff, who in June agreed to let investors Wang and Karimi proceed with a proposed class action suit against the bank and some of its executives.
"This recovery represents approximately 49.4% of the likely recoverable damages in this case, which is well above the median recovery of 1.8% of estimated damages for all securities class actions settled in 2021," said the investors, quoted in Law360. "This is powerful evidence that the settlement is substantively fair to investors."
Friday's settlement affects Deutsche Bank investors within the United States from March 14, 2017 to Sept. 18, 2020.
The defendants, including Deutsche Bank, CEO Christian Sewing and former CEO John Cryan, denied any wrongdoing in the settlement.
Deutsche Bank declined to comment on the matter.