1 00:00:00,160 --> 00:00:02,320 Speaker 1: But knowledge to work and grow your business with c 2 00:00:02,520 --> 00:00:06,680 Speaker 1: i T. From transportation to healthcare to manufacturing. C i 3 00:00:06,760 --> 00:00:10,520 Speaker 1: T offers commercial lending, leasing, and treasury management services for 4 00:00:10,600 --> 00:00:13,520 Speaker 1: small and middle market businesses. Learn more at c i 5 00:00:13,560 --> 00:00:25,440 Speaker 1: T dot com put Knowledge to Work. Hello, and welcome 6 00:00:25,440 --> 00:00:28,400 Speaker 1: to another edition of Odd Lots. I'm Tracy Alloway, executive 7 00:00:28,520 --> 00:00:31,720 Speaker 1: editor of Bloomberg Markets, and I'm Joe. Why isn't all 8 00:00:31,760 --> 00:00:36,159 Speaker 1: Managing editor of Bloomberg Markets? So Joe. On last week's episode, 9 00:00:36,280 --> 00:00:39,680 Speaker 1: we were talking about money, and I rather globly said 10 00:00:39,720 --> 00:00:43,640 Speaker 1: that money was the thing that everybody wanted. But what 11 00:00:43,840 --> 00:00:45,559 Speaker 1: if I told you today that we are going to 12 00:00:45,600 --> 00:00:49,800 Speaker 1: speak with someone who turned down eight point five million dollars, 13 00:00:50,479 --> 00:00:52,760 Speaker 1: I wouldn't believe it. I wouldn't believe that such a 14 00:00:53,360 --> 00:00:56,520 Speaker 1: such a person would exist, that a person would do 15 00:00:56,560 --> 00:00:59,120 Speaker 1: such a thing. Well, we are going to talk to 16 00:00:59,160 --> 00:01:01,640 Speaker 1: someone who turned out point five million dollars. That person 17 00:01:01,760 --> 00:01:05,080 Speaker 1: is Eric ben Artsy. You might remember him from some 18 00:01:05,240 --> 00:01:08,840 Speaker 1: recent headlines. He used to work at Deutsche Bank as 19 00:01:08,880 --> 00:01:12,800 Speaker 1: a risk manager and basically blew the whistle on the 20 00:01:12,840 --> 00:01:17,120 Speaker 1: way the bank was accounting for a big position in derivatives. 21 00:01:17,560 --> 00:01:20,080 Speaker 1: Since then, Deutsche bank got fined by these Securities and 22 00:01:20,160 --> 00:01:23,600 Speaker 1: Exchange Commission in the US and part of that fine 23 00:01:23,959 --> 00:01:27,200 Speaker 1: goes out to pay the whistleblowers. And Eric was just 24 00:01:27,360 --> 00:01:30,240 Speaker 1: one of um well, I think in the end there 25 00:01:30,240 --> 00:01:32,880 Speaker 1: were two of them. So we're going to talk to 26 00:01:32,959 --> 00:01:35,520 Speaker 1: him today about what it's like to be a whistleblower 27 00:01:35,640 --> 00:01:39,080 Speaker 1: and crucially why he turned down all that money. This 28 00:01:39,160 --> 00:01:42,080 Speaker 1: is so fascinating and surprising. I don't want to do 29 00:01:42,160 --> 00:01:44,280 Speaker 1: any more intro. I think we should get right into it, 30 00:01:44,760 --> 00:01:55,640 Speaker 1: all right, Eric, thank you so much for coming on 31 00:01:55,680 --> 00:01:59,600 Speaker 1: the show today. Thank you for having me. So I 32 00:01:59,640 --> 00:02:03,360 Speaker 1: guess to begin, maybe we should start with your career 33 00:02:03,400 --> 00:02:06,120 Speaker 1: at Deutsche Bank, sort of ground zero for where this 34 00:02:06,320 --> 00:02:10,160 Speaker 1: all started. Tell us what you were doing at the bank. UM, 35 00:02:10,200 --> 00:02:15,760 Speaker 1: My job as a risk officer was to oversee the risks, 36 00:02:15,800 --> 00:02:19,800 Speaker 1: the market risks in the trading portfolio. We oversaw many 37 00:02:19,840 --> 00:02:24,360 Speaker 1: of the businesses that the bank was in, both in 38 00:02:24,639 --> 00:02:27,959 Speaker 1: New York and London. UM, in particular, I was looking 39 00:02:28,000 --> 00:02:31,640 Speaker 1: at the credit derivatives portfolio and that's uh, that's where 40 00:02:31,680 --> 00:02:35,880 Speaker 1: the that's where the problems came up. So tell us 41 00:02:36,040 --> 00:02:39,839 Speaker 1: when did you join Deutsche Bank in what was your 42 00:02:40,040 --> 00:02:44,840 Speaker 1: first indication that, in your view, something was wrong with 43 00:02:44,960 --> 00:02:49,000 Speaker 1: the way derivatives were being priced internally. UM. I joined 44 00:02:49,040 --> 00:02:51,799 Speaker 1: the Beta Bank in the summer of two thousand and ten, 45 00:02:52,240 --> 00:02:54,959 Speaker 1: and I had quite a bit of experience before that 46 00:02:55,040 --> 00:02:58,560 Speaker 1: in credit derivatives, both through my work in City Bank 47 00:02:58,639 --> 00:03:04,960 Speaker 1: and also UM at Golden Sacs uh So UM the 48 00:03:05,080 --> 00:03:08,680 Speaker 1: assignment to the credit derivatives portfolio was was pretty natural, 49 00:03:08,760 --> 00:03:11,720 Speaker 1: and I had experience with with the models, with the 50 00:03:11,760 --> 00:03:15,240 Speaker 1: products involved. You know, Gradually, as I as I learned 51 00:03:15,280 --> 00:03:19,400 Speaker 1: more and more about the portfolio at Deutsche Bank, I 52 00:03:19,440 --> 00:03:23,000 Speaker 1: had more and more concerns. And as I raised those 53 00:03:23,000 --> 00:03:27,640 Speaker 1: concerns with my managers, with a countants, and eventually I 54 00:03:27,680 --> 00:03:30,760 Speaker 1: went to the hotline uh the responses that I got 55 00:03:31,200 --> 00:03:34,560 Speaker 1: were more and more alarming to me. So walk us 56 00:03:34,560 --> 00:03:37,080 Speaker 1: through the problems that you discovered, because I know it 57 00:03:37,120 --> 00:03:39,400 Speaker 1: can get a little bit complex, but there are some 58 00:03:39,520 --> 00:03:43,560 Speaker 1: potentially big numbers involved here, and our and our listeners 59 00:03:43,760 --> 00:03:47,280 Speaker 1: like complex details. You don't have to be afraid to 60 00:03:48,440 --> 00:03:55,000 Speaker 1: get wonky okay great. So essentially, UM, the craving derivatives 61 00:03:55,120 --> 00:03:59,720 Speaker 1: in question were synthetic credit derivatives. These were tranches on 62 00:04:00,280 --> 00:04:05,760 Speaker 1: on portfolios of CDs UM. Initially, I was doing some 63 00:04:05,960 --> 00:04:10,480 Speaker 1: stress testing and and I was tasked with UH finding 64 00:04:11,160 --> 00:04:15,360 Speaker 1: risk numbers to this portfolio. I wasn't quite aware of 65 00:04:15,360 --> 00:04:19,280 Speaker 1: what the products underlying that we're actually in the portfolio, 66 00:04:19,400 --> 00:04:22,560 Speaker 1: what they were. My assumption was that these were regular 67 00:04:22,600 --> 00:04:27,440 Speaker 1: tranches and UH. At some point when I started asking questions, 68 00:04:27,440 --> 00:04:29,600 Speaker 1: all of a sudden I realized that I was looking 69 00:04:29,600 --> 00:04:32,800 Speaker 1: at leverage tranches, leverage super seniors as they were called. 70 00:04:33,360 --> 00:04:37,400 Speaker 1: These were more exotic, more risky trades that were worth 71 00:04:37,480 --> 00:04:40,600 Speaker 1: less if you think of it as as an insurance 72 00:04:40,640 --> 00:04:45,000 Speaker 1: contract than a leverage tranch. If you buy insurance in 73 00:04:45,040 --> 00:04:48,840 Speaker 1: the leverage way, you have far less protection then if 74 00:04:48,880 --> 00:04:51,599 Speaker 1: you have a regular tranche where you were protected for 75 00:04:51,720 --> 00:04:56,520 Speaker 1: the entire amount of your portfolio. So one one analogy 76 00:04:56,560 --> 00:05:01,159 Speaker 1: that people seem to like is with U parking about 77 00:05:01,200 --> 00:05:03,480 Speaker 1: full of full of cars. If you're a car dealer 78 00:05:04,040 --> 00:05:08,240 Speaker 1: and you have a used car parking about full full 79 00:05:08,279 --> 00:05:12,360 Speaker 1: of full of used kias, you know, you could argue 80 00:05:12,360 --> 00:05:15,520 Speaker 1: about what kind of values those those used keyas you have. 81 00:05:15,960 --> 00:05:18,480 Speaker 1: You can say there worth five thousand or ten thousand dollars, 82 00:05:18,480 --> 00:05:22,080 Speaker 1: but you can't pretend that these are new ferraris and 83 00:05:22,240 --> 00:05:25,279 Speaker 1: essentially I we realized that this is what the bank 84 00:05:25,400 --> 00:05:29,040 Speaker 1: was doing. It was misrepresenting the trade in its portfolio. 85 00:05:29,440 --> 00:05:31,560 Speaker 1: And I also began to realize just how huge in 86 00:05:31,560 --> 00:05:36,080 Speaker 1: this portfolio is. Essentially Deutsche Bank owned the majority of 87 00:05:36,120 --> 00:05:40,600 Speaker 1: this market. So as as I was raising my concerns 88 00:05:40,600 --> 00:05:43,400 Speaker 1: and getting um answers that made by sense, I also 89 00:05:43,680 --> 00:05:47,279 Speaker 1: got answers that that may be more concerned about the 90 00:05:47,279 --> 00:05:51,560 Speaker 1: the amounts that we're talking about, the the hidden losses 91 00:05:51,640 --> 00:05:54,960 Speaker 1: or if you will be in freded valuations. So back 92 00:05:55,000 --> 00:05:58,240 Speaker 1: in the deep dark days of the financial crisis in 93 00:05:58,360 --> 00:06:02,279 Speaker 1: two thousand ten, wasn't that far off from those understating 94 00:06:02,720 --> 00:06:06,320 Speaker 1: those potential losses would have meant a big, big flattering 95 00:06:06,360 --> 00:06:09,920 Speaker 1: of Deutsche Bank's bottom line, right, basically saving it on 96 00:06:10,160 --> 00:06:13,800 Speaker 1: having to reserve lots and lots of extra capital. Absolutely, 97 00:06:13,960 --> 00:06:17,160 Speaker 1: and so in two thousand ten, initially when I raised 98 00:06:17,560 --> 00:06:19,679 Speaker 1: when I raised my concerns, I thought we were talking 99 00:06:19,720 --> 00:06:24,360 Speaker 1: about about potentially hundreds of millions of dollars. And once 100 00:06:24,400 --> 00:06:26,280 Speaker 1: I asked more and more questions, I realized that this 101 00:06:26,360 --> 00:06:29,840 Speaker 1: was you know, we're talking about billions. Uh so, so yes, 102 00:06:29,960 --> 00:06:33,800 Speaker 1: these little, very large numbers I want to get to 103 00:06:33,960 --> 00:06:37,480 Speaker 1: the part where you sort of blow the whistle and 104 00:06:37,560 --> 00:06:40,400 Speaker 1: raise external issues. But I just want to get a 105 00:06:40,440 --> 00:06:45,040 Speaker 1: little more specific on the specific problem that you saw 106 00:06:45,120 --> 00:06:48,600 Speaker 1: with the way that the derivatives were being priced. Because 107 00:06:48,600 --> 00:06:53,120 Speaker 1: obviously pricing of derivatives and portfolio of derivatives is complex 108 00:06:53,160 --> 00:06:57,440 Speaker 1: and people apply different models and techniques. But what was 109 00:06:57,520 --> 00:07:01,440 Speaker 1: the fundamental difference in how you saw the products and 110 00:07:01,480 --> 00:07:04,360 Speaker 1: how they should be valued versus how they were being 111 00:07:04,480 --> 00:07:08,120 Speaker 1: valued by the bank. So I think that's that's a 112 00:07:08,200 --> 00:07:11,280 Speaker 1: very good point that I wasn't arguing that a specific 113 00:07:11,400 --> 00:07:14,520 Speaker 1: model should view there. There are many many models that 114 00:07:14,560 --> 00:07:17,560 Speaker 1: could potentially be used, and all of them had advantages 115 00:07:17,560 --> 00:07:20,280 Speaker 1: and disadvantages. So you could argue about what the actual 116 00:07:20,360 --> 00:07:23,880 Speaker 1: value was of these trades. That's there's no doubt there, 117 00:07:23,880 --> 00:07:26,840 Speaker 1: But you couldn't pretend like they that You couldn't pretend 118 00:07:26,880 --> 00:07:31,800 Speaker 1: that they were not leveraged. The standard valuation, the correct 119 00:07:31,920 --> 00:07:34,920 Speaker 1: sort of financial engineering valuation of a leverage super senior 120 00:07:35,080 --> 00:07:39,720 Speaker 1: or leverage trunch is as a regular trunch minus an option. Essentially, 121 00:07:40,440 --> 00:07:43,280 Speaker 1: you sold an option to the counterparty to walk away 122 00:07:43,320 --> 00:07:47,120 Speaker 1: through the trade. That's that's really what the what the 123 00:07:47,520 --> 00:07:50,360 Speaker 1: what the trade, UH the way to correctly value this trade. 124 00:07:50,640 --> 00:07:53,320 Speaker 1: So what the value of this option is. You can 125 00:07:53,400 --> 00:07:55,680 Speaker 1: argue over what that is. You can argue about you 126 00:07:55,680 --> 00:07:58,040 Speaker 1: can take different models that would give you different numbers. 127 00:07:58,240 --> 00:08:01,000 Speaker 1: What Deutsche Bank did was just said that these options 128 00:08:01,000 --> 00:08:05,040 Speaker 1: were worth zero. And other banks at the time we're 129 00:08:05,320 --> 00:08:08,160 Speaker 1: using the gap option, right, they were valuing it like 130 00:08:08,320 --> 00:08:11,200 Speaker 1: they could lose all the collateral because the counterparties walk away. 131 00:08:11,840 --> 00:08:15,040 Speaker 1: Absolutely so, so they were there were definitely models used 132 00:08:15,040 --> 00:08:18,480 Speaker 1: being used in other banks and um when when the 133 00:08:18,520 --> 00:08:20,840 Speaker 1: issue was raised that you know that the models that 134 00:08:20,920 --> 00:08:22,880 Speaker 1: there's no model that that does a good job, that 135 00:08:23,240 --> 00:08:26,080 Speaker 1: all the models are unstable, Well, the answer to that 136 00:08:26,240 --> 00:08:28,800 Speaker 1: is if if you can't, if you can't value this option, 137 00:08:28,840 --> 00:08:30,640 Speaker 1: you have to you have to apply the worst case, 138 00:08:30,680 --> 00:08:33,840 Speaker 1: not the best case, especially when when you're looking at 139 00:08:33,880 --> 00:08:38,319 Speaker 1: the underlying swap, you're you are quite happy to take 140 00:08:38,360 --> 00:08:42,199 Speaker 1: a maximal valuation. In other words, these level super seniors, 141 00:08:42,280 --> 00:08:45,360 Speaker 1: their value is equal to the swap which is markto 142 00:08:45,400 --> 00:08:48,680 Speaker 1: market left the option, which is also markto market, which 143 00:08:49,240 --> 00:08:51,760 Speaker 1: took that was happy to take the positive markto market 144 00:08:51,760 --> 00:08:55,160 Speaker 1: on the on the swap, which is also relevative in itself. 145 00:08:55,520 --> 00:08:57,120 Speaker 1: But it but it just said, well, I don't know 146 00:08:57,120 --> 00:08:59,840 Speaker 1: how to value that value. The option is is hard, 147 00:09:00,040 --> 00:09:03,800 Speaker 1: so I'm just gonna market at zero. That was clearly dishonest. 148 00:09:04,600 --> 00:09:06,920 Speaker 1: I should say that that, you know, when I spoke 149 00:09:06,960 --> 00:09:10,720 Speaker 1: with risk managers in other areas, this seems it seemed 150 00:09:10,720 --> 00:09:15,720 Speaker 1: to be a consistent problem throughout the throughout the trading book. 151 00:09:16,360 --> 00:09:19,360 Speaker 1: As I was raising concerns about this particular portfolio, which 152 00:09:19,440 --> 00:09:23,760 Speaker 1: was probably the largest, I also began to realize that 153 00:09:23,800 --> 00:09:27,319 Speaker 1: this there was something more widespread, more systematic here, that 154 00:09:27,679 --> 00:09:30,960 Speaker 1: it seemed as though the bank was really operating on 155 00:09:31,240 --> 00:09:34,360 Speaker 1: little or no reserves for for many trades that should 156 00:09:34,400 --> 00:09:38,040 Speaker 1: have been reserved for. And uh, it seemed as though 157 00:09:38,040 --> 00:09:41,239 Speaker 1: I was trying to sort of inflate inflate its financials. 158 00:09:41,280 --> 00:09:45,120 Speaker 1: That was my impression. So after you start looking at 159 00:09:45,160 --> 00:09:47,680 Speaker 1: the book and talking to other people, walk us through 160 00:09:47,800 --> 00:09:51,720 Speaker 1: exactly what happened when you brought this to the attention 161 00:09:51,720 --> 00:09:54,040 Speaker 1: of your manager. As you mentioned making the call on 162 00:09:54,080 --> 00:09:57,240 Speaker 1: the hotline, I imagine there was quite a process that 163 00:09:57,280 --> 00:09:59,200 Speaker 1: you had to go through before you got to the 164 00:09:59,200 --> 00:10:03,360 Speaker 1: hotline part or the sec part. Yes, I talked with 165 00:10:04,120 --> 00:10:06,040 Speaker 1: you know, with the line of command and within the 166 00:10:06,120 --> 00:10:10,439 Speaker 1: risk management department. I went to the two I spoke 167 00:10:10,520 --> 00:10:15,600 Speaker 1: with with managers and other adjacent areas, model validation, so 168 00:10:15,720 --> 00:10:19,240 Speaker 1: other gatekeepers, if you will. I ended up going to 169 00:10:19,320 --> 00:10:22,760 Speaker 1: the accountants the finance division, so that these are the 170 00:10:22,800 --> 00:10:26,640 Speaker 1: people ultimately responsible for the financials for the statements. And 171 00:10:26,720 --> 00:10:29,600 Speaker 1: that's really where, you know, I was expecting throughout this 172 00:10:29,600 --> 00:10:32,480 Speaker 1: this process that somewhere down the line, somebody is going 173 00:10:32,520 --> 00:10:35,120 Speaker 1: to adjust for this leverage. Somebody's going to adjust for 174 00:10:35,160 --> 00:10:38,439 Speaker 1: the fact that you know, Dutch banks sold a lot, 175 00:10:38,480 --> 00:10:41,120 Speaker 1: you know, options on the huge portfolios that were being 176 00:10:41,120 --> 00:10:43,319 Speaker 1: without good zero Somewhere there's going to be some some 177 00:10:43,360 --> 00:10:46,840 Speaker 1: accounting for that, and the accounting was just it saved. 178 00:10:46,960 --> 00:10:48,839 Speaker 1: Eventually when I talked to the accountants, they said, no, 179 00:10:48,920 --> 00:10:51,599 Speaker 1: it's just about the regular swap. And that's when I 180 00:10:51,640 --> 00:10:54,720 Speaker 1: went to the hotline. So how did the conversations actually go, 181 00:10:54,800 --> 00:10:57,360 Speaker 1: because I can imagine it must be pretty awkward if 182 00:10:57,360 --> 00:10:59,240 Speaker 1: you go up to people and you say, hey, I 183 00:10:59,280 --> 00:11:03,720 Speaker 1: think that um Deytsche Bank's potential losses on its LSS 184 00:11:03,800 --> 00:11:07,920 Speaker 1: portfolio could be massively, massively bigger than we're accounting for. 185 00:11:08,920 --> 00:11:12,200 Speaker 1: UM Yeah, So so absolutely, the answers were were evasive. 186 00:11:12,240 --> 00:11:14,480 Speaker 1: People some people didn't want to talk about it. Therese 187 00:11:14,520 --> 00:11:17,640 Speaker 1: gave answers that were just that we're just wrong. I 188 00:11:17,640 --> 00:11:20,480 Speaker 1: think maybe just because they didn't know. Because these trades 189 00:11:20,480 --> 00:11:23,520 Speaker 1: are pretty pretty complex. Anybody who wasn't who didn't really 190 00:11:23,559 --> 00:11:27,480 Speaker 1: specialize in it, uh, could easily misunderstand. And you could 191 00:11:27,480 --> 00:11:30,200 Speaker 1: tell them that you could you could run into a 192 00:11:30,200 --> 00:11:32,240 Speaker 1: situation where they don't really understand what they're talking what 193 00:11:32,400 --> 00:11:35,000 Speaker 1: what how to value these trades. So some of the 194 00:11:35,000 --> 00:11:39,160 Speaker 1: answers I got, I assumed we're just uninformed answers rather 195 00:11:39,200 --> 00:11:42,559 Speaker 1: than attempt to hide. But when I talk to people 196 00:11:42,559 --> 00:11:46,040 Speaker 1: who did understand, is that the answers were clearly evasive 197 00:11:46,640 --> 00:11:51,040 Speaker 1: and and uh you know was like political were used? 198 00:11:51,679 --> 00:11:54,959 Speaker 1: When when? When? When I asked about it? So all 199 00:11:55,000 --> 00:11:58,320 Speaker 1: of these facts to me, and I want to get 200 00:11:58,320 --> 00:12:00,400 Speaker 1: to the point where you begin to process is of 201 00:12:00,559 --> 00:12:03,920 Speaker 1: um calling the hotline and becoming whistleblower. First, I want 202 00:12:03,920 --> 00:12:06,920 Speaker 1: to take a quick moment for a word from our sponsors, 203 00:12:07,160 --> 00:12:09,319 Speaker 1: but knowledge to work and grow your business with c 204 00:12:09,520 --> 00:12:13,679 Speaker 1: i T from transportation to healthcare to manufacturing. C i 205 00:12:13,760 --> 00:12:17,520 Speaker 1: T offers commercial lending, leasing, and treasury management services for 206 00:12:17,600 --> 00:12:20,520 Speaker 1: small and middle market businesses. Learn more at c I 207 00:12:20,559 --> 00:12:24,199 Speaker 1: T dot com Put Knowledge to Work. And we're back 208 00:12:24,440 --> 00:12:28,880 Speaker 1: with Eric ben Artzief, former risk analyst at Deutsche Bank 209 00:12:29,040 --> 00:12:32,880 Speaker 1: and a whistleblower. So walk us through the process. You 210 00:12:32,920 --> 00:12:36,200 Speaker 1: talk about calling the hotline when you see that there's 211 00:12:36,280 --> 00:12:40,120 Speaker 1: this major unresolved issue with the value of these derivatives. 212 00:12:40,600 --> 00:12:43,840 Speaker 1: What how does that actually work? Walk us through what 213 00:12:43,920 --> 00:12:49,240 Speaker 1: the process is like becoming a whistleblower essentially, So, UM, 214 00:12:49,600 --> 00:12:52,439 Speaker 1: the hotline, there's a number. You call the number and 215 00:12:52,880 --> 00:12:55,800 Speaker 1: it's supposed to be operated by by third party ex 216 00:12:55,800 --> 00:12:59,000 Speaker 1: turn off to the bank, I believe so to to 217 00:12:59,080 --> 00:13:00,960 Speaker 1: the best of my memory, I talk to somebody outside 218 00:13:00,960 --> 00:13:04,839 Speaker 1: of the bank and um and they just take down 219 00:13:04,920 --> 00:13:08,640 Speaker 1: your concerns. That's what you don't You don't really you 220 00:13:08,679 --> 00:13:11,720 Speaker 1: have to express, you know, a fairly complex issue to 221 00:13:11,800 --> 00:13:14,520 Speaker 1: somebody who doesn't really understand what it is, but and 222 00:13:14,800 --> 00:13:17,200 Speaker 1: then hope that that somebody will get back to you. 223 00:13:17,720 --> 00:13:19,559 Speaker 1: It telt a little bit like kind of screaming into 224 00:13:19,559 --> 00:13:25,640 Speaker 1: the dark, but eventually, actually pretty quickly I was contacted 225 00:13:25,720 --> 00:13:29,600 Speaker 1: by by the legal department, by the compliance department, so 226 00:13:29,720 --> 00:13:32,680 Speaker 1: that that that part of it worked pretty well. And 227 00:13:32,720 --> 00:13:35,320 Speaker 1: when did you go to the SEC, because I imagine 228 00:13:35,679 --> 00:13:38,600 Speaker 1: once you made that hotline call, you were probably already 229 00:13:39,040 --> 00:13:42,000 Speaker 1: at least a little bit worried about your job at Deutscha. Yeah, 230 00:13:42,040 --> 00:13:46,000 Speaker 1: so my, my, my, my strategy there was to was 231 00:13:46,120 --> 00:13:49,439 Speaker 1: to go in parallel, essentially to be safe. And I 232 00:13:50,080 --> 00:13:52,600 Speaker 1: wasn't sure whether I would be instantly fired after them 233 00:13:52,640 --> 00:13:55,559 Speaker 1: to the hotline. There was always that that concern, so 234 00:13:55,600 --> 00:13:58,640 Speaker 1: I made sure to go almost simultaneously to the SEC 235 00:13:58,880 --> 00:14:01,800 Speaker 1: with information that I had add and to the Holland 236 00:14:01,840 --> 00:14:05,040 Speaker 1: at the same time. So effectively, it was as though 237 00:14:05,320 --> 00:14:08,520 Speaker 1: these two you know, we're talking about March two thousand eleven, 238 00:14:08,559 --> 00:14:12,120 Speaker 1: these two things were being were being raised and and 239 00:14:12,640 --> 00:14:16,360 Speaker 1: I relater realized that there were ongoing investigations both inside 240 00:14:16,360 --> 00:14:19,720 Speaker 1: the bank ended that you see, you know, a year prior, 241 00:14:20,760 --> 00:14:23,160 Speaker 1: but at the time I thought it was starting investigations 242 00:14:23,160 --> 00:14:27,280 Speaker 1: in both. There were other whistleblowers, and yes, as far 243 00:14:27,320 --> 00:14:30,720 Speaker 1: as I understand it, I've never spoken to Matthew Simpson, 244 00:14:30,760 --> 00:14:33,240 Speaker 1: who is I believe he is the other whistleblower. And 245 00:14:33,280 --> 00:14:36,600 Speaker 1: apparently there was another whistle blow before that, so we 246 00:14:36,720 --> 00:14:39,400 Speaker 1: know of at least three three people who who are 247 00:14:39,560 --> 00:14:44,680 Speaker 1: concerns there? But all were identifying the same thing. Apparently 248 00:14:44,680 --> 00:14:49,240 Speaker 1: I didn't I've ever seen the concerns that that Matthew 249 00:14:49,240 --> 00:14:52,680 Speaker 1: Simpson order the third person raised, and there I believe 250 00:14:52,720 --> 00:14:55,760 Speaker 1: there might have been other whistle blowers as well. They 251 00:14:55,840 --> 00:15:00,000 Speaker 1: might have raised issues that are related or similar. Um, 252 00:15:00,080 --> 00:15:02,440 Speaker 1: these businesses are very complex, you could use there are 253 00:15:02,480 --> 00:15:05,760 Speaker 1: lots of different risks that you can look at. Um, 254 00:15:05,800 --> 00:15:08,040 Speaker 1: the trades were, uh, you know, I'm going to be 255 00:15:08,080 --> 00:15:11,320 Speaker 1: a little bit technical here. These will bespoke leverage super 256 00:15:11,360 --> 00:15:14,080 Speaker 1: senior trades, which is an animal that I didn't really 257 00:15:14,080 --> 00:15:17,480 Speaker 1: think existed before I joined Deutsche Bank. So they were 258 00:15:17,560 --> 00:15:20,440 Speaker 1: very very There were different kinds of risks there, and 259 00:15:20,520 --> 00:15:23,520 Speaker 1: so I wouldn't be surprised this. Other whistle blowers raised 260 00:15:23,520 --> 00:15:28,440 Speaker 1: concerns over other valuation issues, such as quanto. I've heard 261 00:15:28,440 --> 00:15:30,560 Speaker 1: that that was an issue that which I did not raise. 262 00:15:30,960 --> 00:15:33,240 Speaker 1: I talked specifically about the gap of the gap option, 263 00:15:33,400 --> 00:15:36,880 Speaker 1: but there were other issues with this portfolio. Also, there 264 00:15:36,880 --> 00:15:40,200 Speaker 1: are other portfolios that that we're kind of related and 265 00:15:40,320 --> 00:15:42,800 Speaker 1: might might have been similar, maybe CDs portfolios or other 266 00:15:42,840 --> 00:15:46,520 Speaker 1: CEO put photos that had similar issues in them. Possibly, 267 00:15:46,920 --> 00:15:49,120 Speaker 1: so this is all speculative. I don't really know of 268 00:15:49,200 --> 00:15:52,480 Speaker 1: the other whistle blowers, really like what concerns they raised. 269 00:15:52,520 --> 00:15:57,280 Speaker 1: But presumably since since Matthew Simpson, the other whistle low 270 00:15:57,280 --> 00:16:00,480 Speaker 1: assuming is what Matthew Simpson is is uh was also 271 00:16:00,480 --> 00:16:03,160 Speaker 1: given a whistle Goo award. They they also contributed to 272 00:16:03,200 --> 00:16:06,840 Speaker 1: the to the investigation. So it's March of two thousand eleven, 273 00:16:07,000 --> 00:16:09,680 Speaker 1: you've just gone to the SEC. I'm going to be 274 00:16:09,760 --> 00:16:13,520 Speaker 1: slightly facetious. How quickly were you shown the door at 275 00:16:13,520 --> 00:16:17,400 Speaker 1: Deutsche Bank? I took a few months, actually, so I 276 00:16:17,400 --> 00:16:22,320 Speaker 1: I was fired in two thousand eleven, and in between 277 00:16:22,400 --> 00:16:25,920 Speaker 1: that I was actually, you know, I became I was 278 00:16:25,960 --> 00:16:30,360 Speaker 1: introduced to the to the head of compliance regulatory affairs 279 00:16:30,520 --> 00:16:33,480 Speaker 1: at the bank in New York, Robert Rice, and he 280 00:16:33,880 --> 00:16:36,600 Speaker 1: was one who was handling the investigation. There was also 281 00:16:36,640 --> 00:16:39,880 Speaker 1: an outside law firm, Freed Frank that was so I 282 00:16:39,920 --> 00:16:42,960 Speaker 1: guess they were formally in charge of the investigation and 283 00:16:43,040 --> 00:16:46,320 Speaker 1: cooperation was the compliance department. I'm not I'm not quite 284 00:16:46,320 --> 00:16:49,640 Speaker 1: sure what what that means in terms of what the 285 00:16:49,640 --> 00:16:52,760 Speaker 1: regulatory requirements are in terms of an outside law firm 286 00:16:53,480 --> 00:16:56,720 Speaker 1: investigating this. But in the court during this during the 287 00:16:57,000 --> 00:17:01,520 Speaker 1: next few months, I Robert rice Is the Compliance department 288 00:17:01,520 --> 00:17:06,159 Speaker 1: introduced me to a number of other executives, mostly in 289 00:17:06,200 --> 00:17:11,600 Speaker 1: the finance division, so most mostly accountants, h to explain 290 00:17:11,760 --> 00:17:14,240 Speaker 1: or at least they claimed it was to explain to 291 00:17:14,280 --> 00:17:17,760 Speaker 1: me what what was being done inside the bank. Uh. 292 00:17:17,800 --> 00:17:20,520 Speaker 1: In fact, those meetings were more I felt more away 293 00:17:20,520 --> 00:17:24,359 Speaker 1: of trying to to to glean what I understood, what 294 00:17:24,440 --> 00:17:27,120 Speaker 1: I knew, uh, and to help them get a leg 295 00:17:27,240 --> 00:17:30,520 Speaker 1: up on the on the SEC investigation, and also to 296 00:17:30,680 --> 00:17:34,080 Speaker 1: prevent me a vote, to discourage me nuplicitly discourage me 297 00:17:34,160 --> 00:17:36,480 Speaker 1: from going to the SEC. That's that's how I interpret 298 00:17:36,520 --> 00:17:40,080 Speaker 1: those meetings. Uh. They certainly, I certainly was not satisfied 299 00:17:40,680 --> 00:17:43,120 Speaker 1: with the answers that I was given, and I don't 300 00:17:43,160 --> 00:17:47,720 Speaker 1: think that was I don't think an investigation that with 301 00:17:48,080 --> 00:17:52,800 Speaker 1: the purpose of protecting shareholders would have been conducted differently, 302 00:17:53,520 --> 00:17:58,080 Speaker 1: completely and hundred eighty degrees the Instead of instead of 303 00:17:58,080 --> 00:18:02,840 Speaker 1: trying to download the information and try to essentially belong 304 00:18:02,920 --> 00:18:05,320 Speaker 1: to my concerns, they should have They should have gone 305 00:18:05,320 --> 00:18:08,320 Speaker 1: along and gotten to the bottom of it and corrected 306 00:18:08,320 --> 00:18:10,760 Speaker 1: the what what was wrong? And I'm pretty sure that 307 00:18:10,920 --> 00:18:14,800 Speaker 1: you were trying not to do that. When you were fired, 308 00:18:14,880 --> 00:18:17,480 Speaker 1: what did they say the reason was? They just said 309 00:18:17,480 --> 00:18:19,320 Speaker 1: that it was my job was being moved to Berlin. 310 00:18:19,920 --> 00:18:22,720 Speaker 1: In fact, Bank was opening a quantum center for a 311 00:18:22,800 --> 00:18:26,480 Speaker 1: serious department in Berlin, and I had previously before I 312 00:18:26,480 --> 00:18:28,200 Speaker 1: brew the whistle, I had been offered a job there 313 00:18:28,760 --> 00:18:32,239 Speaker 1: and I expressed interest in moving to Berlin. So so 314 00:18:32,320 --> 00:18:35,920 Speaker 1: this was this was clearly just an excuse. But nobody 315 00:18:35,920 --> 00:18:39,240 Speaker 1: ever said anything about conduct. I had. The reviews that 316 00:18:39,280 --> 00:18:42,600 Speaker 1: I had were positives in the time that I expent 317 00:18:42,680 --> 00:18:46,480 Speaker 1: to Burti Bank, So there was really no reason other 318 00:18:46,640 --> 00:18:49,160 Speaker 1: than I can see no reason other than my whistle blowing. 319 00:18:49,720 --> 00:18:53,240 Speaker 1: Did you regret going to the SEC at that point? Oh? No, 320 00:18:53,440 --> 00:18:55,359 Speaker 1: I I thought I did the right thing, and I 321 00:18:55,359 --> 00:18:57,880 Speaker 1: thought that the right thing would happen, that justice would 322 00:18:57,920 --> 00:19:02,600 Speaker 1: be would be uh served us. Well, let's skip ahead then, 323 00:19:02,760 --> 00:19:05,600 Speaker 1: because you were just in the news at the end 324 00:19:05,640 --> 00:19:09,320 Speaker 1: of last month because there was this huge um whistle 325 00:19:09,359 --> 00:19:14,320 Speaker 1: blower award for you and your fellow whistleblowers, and you 326 00:19:14,400 --> 00:19:19,040 Speaker 1: were offered several million dollars as a reward for shining 327 00:19:19,119 --> 00:19:22,280 Speaker 1: a light on this and you didn't accept it. So 328 00:19:22,480 --> 00:19:26,200 Speaker 1: explain to us how that a word came about and 329 00:19:26,680 --> 00:19:29,160 Speaker 1: whether you're surprised by that, and how you made this 330 00:19:29,240 --> 00:19:32,200 Speaker 1: decision that, as we said in the beginning, seems almost 331 00:19:32,320 --> 00:19:35,720 Speaker 1: unfathomable for a person to make. During the years since 332 00:19:35,800 --> 00:19:41,359 Speaker 1: you know, I started, I blew the whistle and spring 333 00:19:41,400 --> 00:19:44,080 Speaker 1: two thousand eleven really blew blew the whistle before that, 334 00:19:44,160 --> 00:19:47,719 Speaker 1: because I started raising the concerns months before that. I 335 00:19:47,800 --> 00:19:50,919 Speaker 1: gradually became not only attached to the case, but also 336 00:19:50,960 --> 00:19:55,680 Speaker 1: attached to the to the idea of seeing justice carried out. 337 00:19:55,720 --> 00:19:58,399 Speaker 1: And after I was fired, this case was also the 338 00:19:58,440 --> 00:20:02,239 Speaker 1: case of my career. So so you could say that 339 00:20:02,280 --> 00:20:05,840 Speaker 1: my life became completely I wouldn't say dependent, but but 340 00:20:05,880 --> 00:20:11,639 Speaker 1: it became very very much attached to this case. And uh. 341 00:20:11,680 --> 00:20:13,840 Speaker 1: And so in the next few years, I pushed the 342 00:20:13,920 --> 00:20:17,119 Speaker 1: sec along. At some points, um, you know, there was 343 00:20:17,160 --> 00:20:20,000 Speaker 1: there was a point where we heard that where there 344 00:20:20,040 --> 00:20:22,840 Speaker 1: were rumors that the the the case is about to 345 00:20:22,840 --> 00:20:26,080 Speaker 1: be closed. Uh. This was in two thousand and twelve, 346 00:20:26,720 --> 00:20:29,439 Speaker 1: and so we went and worked with the Financial Times 347 00:20:29,800 --> 00:20:32,199 Speaker 1: to get the story out and that really kind of 348 00:20:32,240 --> 00:20:36,560 Speaker 1: gave gave gave new life to this case. So I 349 00:20:36,560 --> 00:20:39,360 Speaker 1: wrote a lot to the to the Francial Times reporters 350 00:20:39,400 --> 00:20:43,679 Speaker 1: in this case did a great job and and ultimately 351 00:20:43,720 --> 00:20:45,680 Speaker 1: over these years, I became you know, I became I 352 00:20:45,720 --> 00:20:48,960 Speaker 1: also became familiar with the the lawyers, the Deutsche Bank 353 00:20:49,040 --> 00:20:51,280 Speaker 1: lawyers who went in and out of the SEC. I followed, 354 00:20:51,359 --> 00:20:54,720 Speaker 1: you know, I was forced to follow their their their 355 00:20:54,760 --> 00:20:58,639 Speaker 1: career paths. You know, I read not to these piece 356 00:20:58,680 --> 00:21:01,960 Speaker 1: in two thousand eleven about uh the SEC the internal 357 00:21:02,000 --> 00:21:04,920 Speaker 1: whistle though Darcy Flynn, that's a story that I think 358 00:21:04,960 --> 00:21:08,960 Speaker 1: hasn't gotten that the attention that it deserved. And you 359 00:21:09,000 --> 00:21:12,760 Speaker 1: know which he drew the whistle to Robert Cruisealny the 360 00:21:13,280 --> 00:21:15,720 Speaker 1: who was head of Enforcement and the ads he's seen 361 00:21:15,800 --> 00:21:20,880 Speaker 1: previously was with Deutsche Bank's General Council al from North America. 362 00:21:21,440 --> 00:21:24,680 Speaker 1: At the same time I followed, you know, Robert Rice 363 00:21:24,760 --> 00:21:27,399 Speaker 1: was appointed, you know, went from being the head of 364 00:21:27,440 --> 00:21:31,520 Speaker 1: compliance to being the Chief Counsul at the SEC. So 365 00:21:31,520 --> 00:21:36,119 Speaker 1: so I realized that a gold was working working against 366 00:21:36,240 --> 00:21:39,640 Speaker 1: me and really was working against the rule of law 367 00:21:39,720 --> 00:21:42,560 Speaker 1: in the United States. So the decision not to take 368 00:21:42,560 --> 00:21:47,240 Speaker 1: the award was essentially a protest against this revolving door 369 00:21:47,359 --> 00:21:51,200 Speaker 1: concept between the SEC and Deutsche Bank. But that kind 370 00:21:51,200 --> 00:21:53,960 Speaker 1: of throws up a question, do you think that there's 371 00:21:53,960 --> 00:21:58,159 Speaker 1: a problem with whistle blowing in general or is it 372 00:21:58,280 --> 00:22:02,280 Speaker 1: something specific because which I had so many people at 373 00:22:02,280 --> 00:22:06,600 Speaker 1: the securities watchdogs, so I think I do think that 374 00:22:06,600 --> 00:22:10,320 Speaker 1: that is the problem, the revolving dual problem. Uh. And 375 00:22:10,800 --> 00:22:12,760 Speaker 1: maybe I shouldn't use the word revolving door. I think 376 00:22:12,800 --> 00:22:16,760 Speaker 1: that the justice for sale problem is widespread. It goes 377 00:22:16,760 --> 00:22:20,280 Speaker 1: beyond just bank. It was especially bad here, but I 378 00:22:20,280 --> 00:22:23,320 Speaker 1: think it happens quite unfortunately. It happens quite a bit today. 379 00:22:23,960 --> 00:22:26,760 Speaker 1: So it's not a problem uh, necessarily with little blowing. 380 00:22:26,800 --> 00:22:30,639 Speaker 1: It's a problem with with with the justice system. I 381 00:22:30,680 --> 00:22:34,399 Speaker 1: think justice and money don't mix very well, and there 382 00:22:34,440 --> 00:22:37,640 Speaker 1: are too many, too many loopholes to which it makes 383 00:22:37,680 --> 00:22:41,199 Speaker 1: its way into the system. Not just insecurities law, but 384 00:22:41,400 --> 00:22:44,639 Speaker 1: the insecurity laws especially bad. So so I think my 385 00:22:44,680 --> 00:22:48,320 Speaker 1: case was especially bad. It was especially latent the fact 386 00:22:48,359 --> 00:22:51,639 Speaker 1: that the victims were clearly the shareholders. There was no 387 00:22:51,760 --> 00:22:54,800 Speaker 1: third party, you know, there was no way to I 388 00:22:54,840 --> 00:22:58,200 Speaker 1: can't see any way to argue that the shareholders benefited 389 00:22:58,240 --> 00:23:01,560 Speaker 1: from this, uh, from the inflation of this portfolio. I 390 00:23:01,560 --> 00:23:04,480 Speaker 1: think this is like end there's the shareholders are clearly 391 00:23:04,960 --> 00:23:07,960 Speaker 1: to me the primary victims. I was just gonna say, 392 00:23:07,960 --> 00:23:11,359 Speaker 1: there is a devil's advocate type argument where you could say, well, 393 00:23:11,960 --> 00:23:15,440 Speaker 1: all right, so Deutsche Bank didn't value the gap risk 394 00:23:15,520 --> 00:23:18,240 Speaker 1: in the way that it should have, but it ended 395 00:23:18,320 --> 00:23:22,120 Speaker 1: up not suffering catastrophic losses anyway. Right, So it made 396 00:23:22,119 --> 00:23:25,920 Speaker 1: it through and its assumptions about the gap risk turned 397 00:23:25,960 --> 00:23:28,440 Speaker 1: out to be correct, and in effect it's saved as 398 00:23:28,440 --> 00:23:31,359 Speaker 1: shareholders a lot of pain. Again, that's just a devil's 399 00:23:31,359 --> 00:23:33,879 Speaker 1: advocate argument for you, but it does get to the 400 00:23:33,880 --> 00:23:36,040 Speaker 1: heart of the point that Joe made earlier, which is 401 00:23:36,160 --> 00:23:38,600 Speaker 1: these are really complex things and you're making a lot 402 00:23:38,600 --> 00:23:42,200 Speaker 1: of assumptions about them, and right and wrong aren't always 403 00:23:42,200 --> 00:23:46,080 Speaker 1: that clear cut. Yeah, So I think this devil's advocate 404 00:23:46,560 --> 00:23:48,560 Speaker 1: argument is very important and I've heard it in a 405 00:23:48,600 --> 00:23:51,080 Speaker 1: number of times, and I think the answer to it 406 00:23:51,119 --> 00:23:52,720 Speaker 1: is you can look at you can see the answer 407 00:23:52,760 --> 00:23:55,119 Speaker 1: in the stock place. So the stock price was in 408 00:23:55,200 --> 00:23:58,359 Speaker 1: two thousand and ten after the financial crisis, was north 409 00:23:58,400 --> 00:24:00,840 Speaker 1: of seventy dollars and now it's you know, it reached 410 00:24:00,960 --> 00:24:03,240 Speaker 1: something like twelve with their team. I'm not sure where 411 00:24:03,240 --> 00:24:05,760 Speaker 1: it is today, but you know, the rumors about them 412 00:24:06,359 --> 00:24:10,800 Speaker 1: may possibly requiring a bailout. So it's hard to argue 413 00:24:10,880 --> 00:24:13,439 Speaker 1: that Deutsche Bank didn't take some of those losses and 414 00:24:13,480 --> 00:24:15,960 Speaker 1: just spread it out over subsequent years. And in those 415 00:24:16,080 --> 00:24:21,359 Speaker 1: years that that it tindles losses, the executives took large 416 00:24:21,400 --> 00:24:25,120 Speaker 1: bonuses at the extense of the shareholders. So you're arguing 417 00:24:25,280 --> 00:24:29,439 Speaker 1: that the ill fortunes we've seen of Deutsche Bank in 418 00:24:29,520 --> 00:24:34,600 Speaker 1: recent years, and the stock price is down about from 419 00:24:34,640 --> 00:24:39,600 Speaker 1: its pre crisis peak, is not just some secondary result 420 00:24:39,880 --> 00:24:44,280 Speaker 1: of poor conditions for European banking, but also to some 421 00:24:44,359 --> 00:24:46,880 Speaker 1: extent a direct function of what you see you saw 422 00:24:47,000 --> 00:24:53,000 Speaker 1: as the behavior of the people internally. Two, as you say, 423 00:24:53,520 --> 00:24:57,320 Speaker 1: misstate the value of the assets on the books. Absolutely, 424 00:24:57,480 --> 00:24:59,679 Speaker 1: I think that's it's not the only Obviously, you know, 425 00:24:59,760 --> 00:25:02,520 Speaker 1: this gaps was just one of many things. And yet 426 00:25:02,640 --> 00:25:04,679 Speaker 1: the weakness in your in the European economy I'm sure 427 00:25:04,760 --> 00:25:06,560 Speaker 1: did not help, don't your bank, But if you look 428 00:25:06,600 --> 00:25:09,040 Speaker 1: at some of the other banks, so that the US banks, 429 00:25:09,040 --> 00:25:11,520 Speaker 1: for example, they didn't suffer the same kind of losses 430 00:25:11,560 --> 00:25:14,600 Speaker 1: over the subsequent quarters. Gutamic has a big has a 431 00:25:14,600 --> 00:25:16,960 Speaker 1: big presence in North America, the global bank, So you 432 00:25:16,960 --> 00:25:21,440 Speaker 1: wouldn't expect that you just be exposed only to Europe. Also, 433 00:25:21,560 --> 00:25:24,280 Speaker 1: I want to address one point that Tracy brought up, 434 00:25:24,520 --> 00:25:27,680 Speaker 1: which is well that you know those laws that deutchmk 435 00:25:27,800 --> 00:25:30,320 Speaker 1: was correct and assess things that the gap risk glosses 436 00:25:30,359 --> 00:25:32,800 Speaker 1: are going to go away. Well, that's another way of 437 00:25:32,880 --> 00:25:34,879 Speaker 1: thing of of looking at this is to say that 438 00:25:34,920 --> 00:25:38,040 Speaker 1: the value of the swaps was not was inflated. In 439 00:25:38,040 --> 00:25:39,919 Speaker 1: other words, if you say that the gap option it 440 00:25:39,960 --> 00:25:43,360 Speaker 1: was worthless, was was worth zero and it was just 441 00:25:43,600 --> 00:25:46,879 Speaker 1: a temporary fluke around two thousand nine and ten or 442 00:25:47,040 --> 00:25:50,199 Speaker 1: eight nine ten, that its value was very high, you 443 00:25:50,240 --> 00:25:51,959 Speaker 1: have to say the same thing about the swap itself. 444 00:25:52,160 --> 00:25:53,840 Speaker 1: So the swap in the options go hand in hand. 445 00:25:54,080 --> 00:25:56,520 Speaker 1: So you can't make an argument about one without making 446 00:25:56,560 --> 00:25:59,560 Speaker 1: the same argument about the other. What I see is 447 00:26:00,080 --> 00:26:02,600 Speaker 1: having happened to Deutsche Bank in those years is that 448 00:26:02,640 --> 00:26:05,119 Speaker 1: they invented quite a bit of capital on the on 449 00:26:05,240 --> 00:26:08,680 Speaker 1: the balance sheet, and that in that capital that they invented, 450 00:26:08,720 --> 00:26:12,399 Speaker 1: they dissipated it over the subsequent quarters. How much was 451 00:26:12,440 --> 00:26:16,960 Speaker 1: the Deutsche Bank scandal that you identified to do with 452 00:26:17,560 --> 00:26:21,440 Speaker 1: the complexity of these leverage super senior positions, and how 453 00:26:21,520 --> 00:26:25,440 Speaker 1: much of it had to do with a cultural problem 454 00:26:25,600 --> 00:26:27,960 Speaker 1: at the bank. I guess what I'm asking is, could 455 00:26:28,000 --> 00:26:32,399 Speaker 1: we get a scandal on the same sort of level 456 00:26:33,320 --> 00:26:36,080 Speaker 1: for something like a certificate of deposit or like a 457 00:26:36,200 --> 00:26:39,240 Speaker 1: much simpler type of product, or is this something that 458 00:26:39,280 --> 00:26:42,760 Speaker 1: you think could only happen in the deep dark realms 459 00:26:42,760 --> 00:26:46,359 Speaker 1: of the derivatives world. I think certainly it's easier to 460 00:26:46,359 --> 00:26:49,360 Speaker 1: too high losses when you have something that nobody really understands. 461 00:26:49,480 --> 00:26:52,600 Speaker 1: So certainly when you have these these I think they're 462 00:26:52,600 --> 00:26:57,080 Speaker 1: called level three assets with with very complex UH models 463 00:26:57,160 --> 00:26:59,800 Speaker 1: that understanding what the what the contract itself is, you know, 464 00:26:59,840 --> 00:27:04,639 Speaker 1: a very complicated It's easier to to to inflate the valuation. 465 00:27:04,920 --> 00:27:07,840 Speaker 1: It's a lot harder to to say that, you know, 466 00:27:07,960 --> 00:27:10,520 Speaker 1: some stock of company X, Y and Z which is 467 00:27:10,520 --> 00:27:13,760 Speaker 1: treading at twenty. It's harder to market at forty dollars. 468 00:27:14,880 --> 00:27:17,879 Speaker 1: So what are you doing now? So you've renounced this 469 00:27:18,160 --> 00:27:22,720 Speaker 1: U reward? Do you feel that you've made a statement 470 00:27:22,800 --> 00:27:26,399 Speaker 1: that you tried to make by not accepting this money, 471 00:27:26,480 --> 00:27:30,400 Speaker 1: that the punishment of Deutsche Bank shouldn't fall on the shareholders. 472 00:27:30,440 --> 00:27:33,480 Speaker 1: Do you feel like you've made that statement? And where 473 00:27:33,520 --> 00:27:38,040 Speaker 1: to next? For you. Uh So I think it's it's 474 00:27:38,080 --> 00:27:39,800 Speaker 1: not so much a statement as much as it just 475 00:27:40,160 --> 00:27:42,200 Speaker 1: refusal can be part of that. So I just don't 476 00:27:42,200 --> 00:27:44,520 Speaker 1: want to, you know, if you saw, you know, if 477 00:27:44,560 --> 00:27:46,320 Speaker 1: you saw the analogy that I like to give it, 478 00:27:46,880 --> 00:27:49,560 Speaker 1: if you if you saw somebody getting mugged in the 479 00:27:49,560 --> 00:27:51,919 Speaker 1: street in New York and then you call the cops, 480 00:27:52,200 --> 00:27:54,639 Speaker 1: and then the cops shows up, and the cop is 481 00:27:54,640 --> 00:27:57,480 Speaker 1: actually the guy who just who just mugged the victim, 482 00:27:57,520 --> 00:28:00,320 Speaker 1: and he mugged the victim again, and then wild you 483 00:28:00,520 --> 00:28:02,439 Speaker 1: a couple of dollars out of the water so that 484 00:28:02,480 --> 00:28:05,800 Speaker 1: you shut up. You probably woudn't do that, And so 485 00:28:05,840 --> 00:28:07,960 Speaker 1: I don't think what I did is so extraordinary. I 486 00:28:07,960 --> 00:28:10,919 Speaker 1: think if people, if you see the see it the 487 00:28:10,920 --> 00:28:14,560 Speaker 1: way I do, which is which is as you know, 488 00:28:14,600 --> 00:28:17,800 Speaker 1: the victim being robbed again and the award money being 489 00:28:18,400 --> 00:28:21,560 Speaker 1: sort of hush money, then then it's what I did 490 00:28:21,680 --> 00:28:24,920 Speaker 1: is really not not not extraordinary at all in terms 491 00:28:24,960 --> 00:28:28,200 Speaker 1: of the impact or the outcome. You know, I think 492 00:28:28,240 --> 00:28:31,880 Speaker 1: it's you know, the the fight to get the justice 493 00:28:31,880 --> 00:28:35,120 Speaker 1: system cleaned up, if you will to to to have 494 00:28:35,880 --> 00:28:37,560 Speaker 1: you know, to have the same the same kind of 495 00:28:37,600 --> 00:28:41,240 Speaker 1: justice of the power phone that connected as everybody else. 496 00:28:41,280 --> 00:28:43,680 Speaker 1: I think that's that's a really long term struggle. So 497 00:28:43,800 --> 00:28:46,040 Speaker 1: I don't think I'm going to make buy myself. I'm 498 00:28:46,040 --> 00:28:47,680 Speaker 1: not gonna make a difference. But I do think that 499 00:28:47,720 --> 00:28:51,239 Speaker 1: I have that they make a small difference and hopefully 500 00:28:51,560 --> 00:28:54,360 Speaker 1: there will be more people like me and then hopefully 501 00:28:54,360 --> 00:28:58,080 Speaker 1: we will make a difference together. What's next for me? Uh? 502 00:28:58,160 --> 00:29:01,320 Speaker 1: You know, I've we built my career and UH in 503 00:29:01,360 --> 00:29:04,320 Speaker 1: the fintech company are very proud of of the work 504 00:29:04,360 --> 00:29:06,680 Speaker 1: we're doing. The name of the company's bond i t 505 00:29:07,600 --> 00:29:14,120 Speaker 1: um We we had a product aims to improve the 506 00:29:14,160 --> 00:29:18,280 Speaker 1: world of invest in bond investing specifically, so we work 507 00:29:18,360 --> 00:29:21,280 Speaker 1: with with some of the major financial institutions in the 508 00:29:21,280 --> 00:29:26,320 Speaker 1: world to help construct smart portfolios, small bond portfolios for 509 00:29:26,440 --> 00:29:31,760 Speaker 1: their retail and private banking customers. Would you ever return 510 00:29:31,840 --> 00:29:34,560 Speaker 1: to Wall Street? Could you ever return to Wall Street? 511 00:29:35,320 --> 00:29:37,920 Speaker 1: You know, I think I think that as yes I would, 512 00:29:37,960 --> 00:29:40,080 Speaker 1: and I also think yes I could. I just think 513 00:29:40,160 --> 00:29:43,480 Speaker 1: that you know, it's it's it's a matter of it's 514 00:29:43,480 --> 00:29:46,160 Speaker 1: a matter of a change in in in culture and perception. 515 00:29:46,400 --> 00:29:48,800 Speaker 1: I think I think the fact that what I didn't 516 00:29:48,840 --> 00:29:52,640 Speaker 1: seems extraordinary. It's conceivable that it could happen that that 517 00:29:52,680 --> 00:29:56,960 Speaker 1: the culture and the management in in some of these 518 00:29:57,000 --> 00:30:01,920 Speaker 1: major financial institutions would be um more aligned with that, 519 00:30:02,040 --> 00:30:04,440 Speaker 1: more aligned with the shareholders, more aligned with with the 520 00:30:04,520 --> 00:30:07,480 Speaker 1: rule of law. Then I think, then I think I 521 00:30:07,800 --> 00:30:11,240 Speaker 1: couldn't very well find myself working again on Wall Street. 522 00:30:11,640 --> 00:30:14,920 Speaker 1: It may sound like, you know, like uh, like a 523 00:30:15,000 --> 00:30:17,800 Speaker 1: dream when I'm saying it now, but I think, you know, 524 00:30:17,840 --> 00:30:22,520 Speaker 1: stranger things have happened. All right, let's leave it there, Eric, 525 00:30:22,560 --> 00:30:24,880 Speaker 1: thank you so much for joining us today. Thank you. 526 00:30:24,880 --> 00:30:37,480 Speaker 1: I appreciate are you having done so? Joe. I thought 527 00:30:37,560 --> 00:30:39,920 Speaker 1: that was a really fascinating story, And I think the 528 00:30:40,000 --> 00:30:43,400 Speaker 1: thing that emerges the most from it is probably the 529 00:30:43,480 --> 00:30:46,360 Speaker 1: courage of a guy who kind of knew he was 530 00:30:46,600 --> 00:30:50,200 Speaker 1: probably going to lose his job by blowing the whistle 531 00:30:50,280 --> 00:30:52,520 Speaker 1: on this, and then the idea that he gave up 532 00:30:52,600 --> 00:30:56,800 Speaker 1: millions of dollars on principle. I like to think I 533 00:30:56,800 --> 00:30:59,600 Speaker 1: would do the same thing, But let's be a real realistic. 534 00:30:59,640 --> 00:31:02,520 Speaker 1: How many of us actually would? Yeah, um, you know, 535 00:31:02,640 --> 00:31:04,720 Speaker 1: he said he didn't think that that was a really 536 00:31:04,760 --> 00:31:10,120 Speaker 1: extraordinary thing, and I did like his framing that Essentially, 537 00:31:10,200 --> 00:31:12,680 Speaker 1: if you consider what he blew the whistle on to 538 00:31:12,800 --> 00:31:18,040 Speaker 1: be deleterious to shareholders, and his whistleblow reward would also 539 00:31:18,120 --> 00:31:20,480 Speaker 1: come from shareholders that he was, as he put it, 540 00:31:20,560 --> 00:31:24,680 Speaker 1: participating in the theft. I still think that is a 541 00:31:24,720 --> 00:31:27,880 Speaker 1: way of framing it. That is quite extraordinary that very 542 00:31:27,920 --> 00:31:30,000 Speaker 1: few people would get to that way of thinking about 543 00:31:30,040 --> 00:31:33,080 Speaker 1: it when given the opportunity to collect so much money. 544 00:31:33,240 --> 00:31:35,440 Speaker 1: The other thing that struck me is, uh, you know, 545 00:31:35,600 --> 00:31:39,080 Speaker 1: it warms my heart to talk about all these financial 546 00:31:39,160 --> 00:31:42,640 Speaker 1: crisis relics like leverage, super seniors and quanto risk and 547 00:31:42,840 --> 00:31:46,440 Speaker 1: correlation books and things like that, but it throws up 548 00:31:46,520 --> 00:31:50,640 Speaker 1: this question. You know, many years after the financial crisis, 549 00:31:50,680 --> 00:31:54,480 Speaker 1: it feels like we've gone some way towards tackling some 550 00:31:54,600 --> 00:31:59,080 Speaker 1: of the complexity in banking, but I'm not sure we've 551 00:31:59,120 --> 00:32:02,240 Speaker 1: done that much to actually fix some of the cultural 552 00:32:02,320 --> 00:32:05,960 Speaker 1: problems that people like Eric have identified. I totally agree 553 00:32:05,960 --> 00:32:07,920 Speaker 1: with that. One of the things I thought was interesting 554 00:32:08,200 --> 00:32:10,640 Speaker 1: was this kind of reminds me a little bit of 555 00:32:10,680 --> 00:32:13,160 Speaker 1: the discussion that we had several weeks ago with the 556 00:32:13,160 --> 00:32:17,680 Speaker 1: professor who say, uh, Lehman could have been saved. And 557 00:32:18,040 --> 00:32:21,479 Speaker 1: when we go back to these stories. Common thread, of 558 00:32:21,520 --> 00:32:25,360 Speaker 1: course is that during periods of extreme volatility and with 559 00:32:25,440 --> 00:32:29,960 Speaker 1: these complicated financial products, there's often some debate about how 560 00:32:30,000 --> 00:32:32,760 Speaker 1: they're valued at any given moment. So I like the 561 00:32:32,760 --> 00:32:35,880 Speaker 1: way he clarified that his take, which was that this 562 00:32:36,000 --> 00:32:38,600 Speaker 1: was not really, in his view, a debate about which 563 00:32:38,640 --> 00:32:41,280 Speaker 1: model to use, and of course you could have agreed, um, 564 00:32:41,600 --> 00:32:45,959 Speaker 1: disagreement about that, but sort of fundamentally the building blocks 565 00:32:46,000 --> 00:32:49,120 Speaker 1: of the model, just acknowledging what you and it's sort 566 00:32:49,120 --> 00:32:52,760 Speaker 1: of like agreeing on a common side facts to go 567 00:32:52,800 --> 00:32:55,840 Speaker 1: into the model and so being a little bit, in 568 00:32:55,960 --> 00:32:59,080 Speaker 1: his view, more clear than mirror sort of disagreement about 569 00:32:59,240 --> 00:33:03,840 Speaker 1: or deconstructing your conclusion, right right, right, all right? Um, 570 00:33:03,920 --> 00:33:08,520 Speaker 1: well on that happy note, shall we deconstruct this conversation? 571 00:33:09,400 --> 00:33:13,520 Speaker 1: Sounds good? All right? Uh, this is another episode of 572 00:33:13,520 --> 00:33:15,880 Speaker 1: Odd Thoughts. I'm Tracy Alloway. You can find me on 573 00:33:15,920 --> 00:33:18,840 Speaker 1: Twitter at Tracy Alloway and I'm Joe wi Isn't All. 574 00:33:18,880 --> 00:33:21,760 Speaker 1: You can follow me at the stall Warts. Thanks for listening. 575 00:33:25,920 --> 00:33:28,120 Speaker 1: Put knowledge to work and grow your business with c 576 00:33:28,280 --> 00:33:32,480 Speaker 1: i T. From transportation to healthcare to manufacturing. C i 577 00:33:32,520 --> 00:33:36,240 Speaker 1: T offers commercial lending, leasing, and treasury management services for 578 00:33:36,400 --> 00:33:39,280 Speaker 1: small and middle market businesses. Learn more at c I 579 00:33:39,320 --> 00:33:41,440 Speaker 1: T dot com put knowledge to work