WEBVTT - 45: Why A Whistleblower Walked Away From Over $8 Million 0:00:00.160 --> 0:00:02.320 But knowledge to work and grow your business with c 0:00:02.520 --> 0:00:06.680 i T. From transportation to healthcare to manufacturing. C i 0:00:06.760 --> 0:00:10.520 T offers commercial lending, leasing, and treasury management services for 0:00:10.600 --> 0:00:13.520 small and middle market businesses. Learn more at c i 0:00:13.560 --> 0:00:25.440 T dot com put Knowledge to Work. Hello, and welcome 0:00:25.440 --> 0:00:28.400 to another edition of Odd Lots. I'm Tracy Alloway, executive 0:00:28.520 --> 0:00:31.720 editor of Bloomberg Markets, and I'm Joe. Why isn't all 0:00:31.760 --> 0:00:36.159 Managing editor of Bloomberg Markets? So Joe. On last week's episode, 0:00:36.280 --> 0:00:39.680 we were talking about money, and I rather globly said 0:00:39.720 --> 0:00:43.640 that money was the thing that everybody wanted. But what 0:00:43.840 --> 0:00:45.559 if I told you today that we are going to 0:00:45.600 --> 0:00:49.800 speak with someone who turned down eight point five million dollars, 0:00:50.479 --> 0:00:52.760 I wouldn't believe it. I wouldn't believe that such a 0:00:53.360 --> 0:00:56.520 such a person would exist, that a person would do 0:00:56.560 --> 0:00:59.120 such a thing. Well, we are going to talk to 0:00:59.160 --> 0:01:01.640 someone who turned out point five million dollars. That person 0:01:01.760 --> 0:01:05.080 is Eric ben Artsy. You might remember him from some 0:01:05.240 --> 0:01:08.840 recent headlines. He used to work at Deutsche Bank as 0:01:08.880 --> 0:01:12.800 a risk manager and basically blew the whistle on the 0:01:12.840 --> 0:01:17.120 way the bank was accounting for a big position in derivatives. 0:01:17.560 --> 0:01:20.080 Since then, Deutsche bank got fined by these Securities and 0:01:20.160 --> 0:01:23.600 Exchange Commission in the US and part of that fine 0:01:23.959 --> 0:01:27.200 goes out to pay the whistleblowers. And Eric was just 0:01:27.360 --> 0:01:30.240 one of um well, I think in the end there 0:01:30.240 --> 0:01:32.880 were two of them. So we're going to talk to 0:01:32.959 --> 0:01:35.520 him today about what it's like to be a whistleblower 0:01:35.640 --> 0:01:39.080 and crucially why he turned down all that money. This 0:01:39.160 --> 0:01:42.080 is so fascinating and surprising. I don't want to do 0:01:42.160 --> 0:01:44.280 any more intro. I think we should get right into it, 0:01:44.760 --> 0:01:55.640 all right, Eric, thank you so much for coming on 0:01:55.680 --> 0:01:59.600 the show today. Thank you for having me. So I 0:01:59.640 --> 0:02:03.360 guess to begin, maybe we should start with your career 0:02:03.400 --> 0:02:06.120 at Deutsche Bank, sort of ground zero for where this 0:02:06.320 --> 0:02:10.160 all started. Tell us what you were doing at the bank. UM, 0:02:10.200 --> 0:02:15.760 My job as a risk officer was to oversee the risks, 0:02:15.800 --> 0:02:19.800 the market risks in the trading portfolio. We oversaw many 0:02:19.840 --> 0:02:24.360 of the businesses that the bank was in, both in 0:02:24.639 --> 0:02:27.959 New York and London. UM, in particular, I was looking 0:02:28.000 --> 0:02:31.640 at the credit derivatives portfolio and that's uh, that's where 0:02:31.680 --> 0:02:35.880 the that's where the problems came up. So tell us 0:02:36.040 --> 0:02:39.839 when did you join Deutsche Bank in what was your 0:02:40.040 --> 0:02:44.840 first indication that, in your view, something was wrong with 0:02:44.960 --> 0:02:49.000 the way derivatives were being priced internally. UM. I joined 0:02:49.040 --> 0:02:51.799 the Beta Bank in the summer of two thousand and ten, 0:02:52.240 --> 0:02:54.959 and I had quite a bit of experience before that 0:02:55.040 --> 0:02:58.560 in credit derivatives, both through my work in City Bank 0:02:58.639 --> 0:03:04.960 and also UM at Golden Sacs uh So UM the 0:03:05.080 --> 0:03:08.680 assignment to the credit derivatives portfolio was was pretty natural, 0:03:08.760 --> 0:03:11.720 and I had experience with with the models, with the 0:03:11.760 --> 0:03:15.240 products involved. You know, Gradually, as I as I learned 0:03:15.280 --> 0:03:19.400 more and more about the portfolio at Deutsche Bank, I 0:03:19.440 --> 0:03:23.000 had more and more concerns. And as I raised those 0:03:23.000 --> 0:03:27.640 concerns with my managers, with a countants, and eventually I 0:03:27.680 --> 0:03:30.760 went to the hotline uh the responses that I got 0:03:31.200 --> 0:03:34.560 were more and more alarming to me. So walk us 0:03:34.560 --> 0:03:37.080 through the problems that you discovered, because I know it 0:03:37.120 --> 0:03:39.400 can get a little bit complex, but there are some 0:03:39.520 --> 0:03:43.560 potentially big numbers involved here, and our and our listeners 0:03:43.760 --> 0:03:47.280 like complex details. You don't have to be afraid to 0:03:48.440 --> 0:03:55.000 get wonky okay great. So essentially, UM, the craving derivatives 0:03:55.120 --> 0:03:59.720 in question were synthetic credit derivatives. These were tranches on 0:04:00.280 --> 0:04:05.760 on portfolios of CDs UM. Initially, I was doing some 0:04:05.960 --> 0:04:10.480 stress testing and and I was tasked with UH finding 0:04:11.160 --> 0:04:15.360 risk numbers to this portfolio. I wasn't quite aware of 0:04:15.360 --> 0:04:19.280 what the products underlying that we're actually in the portfolio, 0:04:19.400 --> 0:04:22.560 what they were. My assumption was that these were regular 0:04:22.600 --> 0:04:27.440 tranches and UH. At some point when I started asking questions, 0:04:27.440 --> 0:04:29.600 all of a sudden I realized that I was looking 0:04:29.600 --> 0:04:32.800 at leverage tranches, leverage super seniors as they were called. 0:04:33.360 --> 0:04:37.400 These were more exotic, more risky trades that were worth 0:04:37.480 --> 0:04:40.600 less if you think of it as as an insurance 0:04:40.640 --> 0:04:45.000 contract than a leverage tranch. If you buy insurance in 0:04:45.040 --> 0:04:48.840 the leverage way, you have far less protection then if 0:04:48.880 --> 0:04:51.599 you have a regular tranche where you were protected for 0:04:51.720 --> 0:04:56.520 the entire amount of your portfolio. So one one analogy 0:04:56.560 --> 0:05:01.159 that people seem to like is with U parking about 0:05:01.200 --> 0:05:03.480 full of full of cars. If you're a car dealer 0:05:04.040 --> 0:05:08.240 and you have a used car parking about full full 0:05:08.279 --> 0:05:12.360 of full of used kias, you know, you could argue 0:05:12.360 --> 0:05:15.520 about what kind of values those those used keyas you have. 0:05:15.960 --> 0:05:18.480 You can say there worth five thousand or ten thousand dollars, 0:05:18.480 --> 0:05:22.080 but you can't pretend that these are new ferraris and 0:05:22.240 --> 0:05:25.279 essentially I we realized that this is what the bank 0:05:25.400 --> 0:05:29.040 was doing. It was misrepresenting the trade in its portfolio. 0:05:29.440 --> 0:05:31.560 And I also began to realize just how huge in 0:05:31.560 --> 0:05:36.080 this portfolio is. Essentially Deutsche Bank owned the majority of 0:05:36.120 --> 0:05:40.600 this market. So as as I was raising my concerns 0:05:40.600 --> 0:05:43.400 and getting um answers that made by sense, I also 0:05:43.680 --> 0:05:47.279 got answers that that may be more concerned about the 0:05:47.279 --> 0:05:51.560 the amounts that we're talking about, the the hidden losses 0:05:51.640 --> 0:05:54.960 or if you will be in freded valuations. So back 0:05:55.000 --> 0:05:58.240 in the deep dark days of the financial crisis in 0:05:58.360 --> 0:06:02.279 two thousand ten, wasn't that far off from those understating 0:06:02.720 --> 0:06:06.320 those potential losses would have meant a big, big flattering 0:06:06.360 --> 0:06:09.920 of Deutsche Bank's bottom line, right, basically saving it on 0:06:10.160 --> 0:06:13.800 having to reserve lots and lots of extra capital. Absolutely, 0:06:13.960 --> 0:06:17.160 and so in two thousand ten, initially when I raised 0:06:17.560 --> 0:06:19.679 when I raised my concerns, I thought we were talking 0:06:19.720 --> 0:06:24.360 about about potentially hundreds of millions of dollars. And once 0:06:24.400 --> 0:06:26.280 I asked more and more questions, I realized that this 0:06:26.360 --> 0:06:29.840 was you know, we're talking about billions. Uh so, so yes, 0:06:29.960 --> 0:06:33.800 these little, very large numbers I want to get to 0:06:33.960 --> 0:06:37.480 the part where you sort of blow the whistle and 0:06:37.560 --> 0:06:40.400 raise external issues. But I just want to get a 0:06:40.440 --> 0:06:45.040 little more specific on the specific problem that you saw 0:06:45.120 --> 0:06:48.600 with the way that the derivatives were being priced. Because 0:06:48.600 --> 0:06:53.120 obviously pricing of derivatives and portfolio of derivatives is complex 0:06:53.160 --> 0:06:57.440 and people apply different models and techniques. But what was 0:06:57.520 --> 0:07:01.440 the fundamental difference in how you saw the products and 0:07:01.480 --> 0:07:04.360 how they should be valued versus how they were being 0:07:04.480 --> 0:07:08.120 valued by the bank. So I think that's that's a 0:07:08.200 --> 0:07:11.280 very good point that I wasn't arguing that a specific 0:07:11.400 --> 0:07:14.520 model should view there. There are many many models that 0:07:14.560 --> 0:07:17.560 could potentially be used, and all of them had advantages 0:07:17.560 --> 0:07:20.280 and disadvantages. So you could argue about what the actual 0:07:20.360 --> 0:07:23.880 value was of these trades. That's there's no doubt there, 0:07:23.880 --> 0:07:26.840 But you couldn't pretend like they that You couldn't pretend 0:07:26.880 --> 0:07:31.800 that they were not leveraged. The standard valuation, the correct 0:07:31.920 --> 0:07:34.920 sort of financial engineering valuation of a leverage super senior 0:07:35.080 --> 0:07:39.720 or leverage trunch is as a regular trunch minus an option. Essentially, 0:07:40.440 --> 0:07:43.280 you sold an option to the counterparty to walk away 0:07:43.320 --> 0:07:47.120 through the trade. That's that's really what the what the 0:07:47.520 --> 0:07:50.360 what the trade, UH the way to correctly value this trade. 0:07:50.640 --> 0:07:53.320 So what the value of this option is. You can 0:07:53.400 --> 0:07:55.680 argue over what that is. You can argue about you 0:07:55.680 --> 0:07:58.040 can take different models that would give you different numbers. 0:07:58.240 --> 0:08:01.000 What Deutsche Bank did was just said that these options 0:08:01.000 --> 0:08:05.040 were worth zero. And other banks at the time we're 0:08:05.320 --> 0:08:08.160 using the gap option, right, they were valuing it like 0:08:08.320 --> 0:08:11.200 they could lose all the collateral because the counterparties walk away. 0:08:11.840 --> 0:08:15.040 Absolutely so, so they were there were definitely models used 0:08:15.040 --> 0:08:18.480 being used in other banks and um when when the 0:08:18.520 --> 0:08:20.840 issue was raised that you know that the models that 0:08:20.920 --> 0:08:22.880 there's no model that that does a good job, that 0:08:23.240 --> 0:08:26.080 all the models are unstable, Well, the answer to that 0:08:26.240 --> 0:08:28.800 is if if you can't, if you can't value this option, 0:08:28.840 --> 0:08:30.640 you have to you have to apply the worst case, 0:08:30.680 --> 0:08:33.840 not the best case, especially when when you're looking at 0:08:33.880 --> 0:08:38.319 the underlying swap, you're you are quite happy to take 0:08:38.360 --> 0:08:42.199 a maximal valuation. In other words, these level super seniors, 0:08:42.280 --> 0:08:45.360 their value is equal to the swap which is markto 0:08:45.400 --> 0:08:48.680 market left the option, which is also markto market, which 0:08:49.240 --> 0:08:51.760 took that was happy to take the positive markto market 0:08:51.760 --> 0:08:55.160 on the on the swap, which is also relevative in itself. 0:08:55.520 --> 0:08:57.120 But it but it just said, well, I don't know 0:08:57.120 --> 0:08:59.840 how to value that value. The option is is hard, 0:09:00.040 --> 0:09:03.800 so I'm just gonna market at zero. That was clearly dishonest. 0:09:04.600 --> 0:09:06.920 I should say that that, you know, when I spoke 0:09:06.960 --> 0:09:10.720 with risk managers in other areas, this seems it seemed 0:09:10.720 --> 0:09:15.720 to be a consistent problem throughout the throughout the trading book. 0:09:16.360 --> 0:09:19.360 As I was raising concerns about this particular portfolio, which 0:09:19.440 --> 0:09:23.760 was probably the largest, I also began to realize that 0:09:23.800 --> 0:09:27.319 this there was something more widespread, more systematic here, that 0:09:27.679 --> 0:09:30.960 it seemed as though the bank was really operating on 0:09:31.240 --> 0:09:34.360 little or no reserves for for many trades that should 0:09:34.400 --> 0:09:38.040 have been reserved for. And uh, it seemed as though 0:09:38.040 --> 0:09:41.239 I was trying to sort of inflate inflate its financials. 0:09:41.280 --> 0:09:45.120 That was my impression. So after you start looking at 0:09:45.160 --> 0:09:47.680 the book and talking to other people, walk us through 0:09:47.800 --> 0:09:51.720 exactly what happened when you brought this to the attention 0:09:51.720 --> 0:09:54.040 of your manager. As you mentioned making the call on 0:09:54.080 --> 0:09:57.240 the hotline, I imagine there was quite a process that 0:09:57.280 --> 0:09:59.200 you had to go through before you got to the 0:09:59.200 --> 0:10:03.360 hotline part or the sec part. Yes, I talked with 0:10:04.120 --> 0:10:06.040 you know, with the line of command and within the 0:10:06.120 --> 0:10:10.439 risk management department. I went to the two I spoke 0:10:10.520 --> 0:10:15.600 with with managers and other adjacent areas, model validation, so 0:10:15.720 --> 0:10:19.240 other gatekeepers, if you will. I ended up going to 0:10:19.320 --> 0:10:22.760 the accountants the finance division, so that these are the 0:10:22.800 --> 0:10:26.640 people ultimately responsible for the financials for the statements. And 0:10:26.720 --> 0:10:29.600 that's really where, you know, I was expecting throughout this 0:10:29.600 --> 0:10:32.480 this process that somewhere down the line, somebody is going 0:10:32.520 --> 0:10:35.120 to adjust for this leverage. Somebody's going to adjust for 0:10:35.160 --> 0:10:38.439 the fact that you know, Dutch banks sold a lot, 0:10:38.480 --> 0:10:41.120 you know, options on the huge portfolios that were being 0:10:41.120 --> 0:10:43.319 without good zero Somewhere there's going to be some some 0:10:43.360 --> 0:10:46.840 accounting for that, and the accounting was just it saved. 0:10:46.960 --> 0:10:48.839 Eventually when I talked to the accountants, they said, no, 0:10:48.920 --> 0:10:51.599 it's just about the regular swap. And that's when I 0:10:51.640 --> 0:10:54.720 went to the hotline. So how did the conversations actually go, 0:10:54.800 --> 0:10:57.360 because I can imagine it must be pretty awkward if 0:10:57.360 --> 0:10:59.240 you go up to people and you say, hey, I 0:10:59.280 --> 0:11:03.720 think that um Deytsche Bank's potential losses on its LSS 0:11:03.800 --> 0:11:07.920 portfolio could be massively, massively bigger than we're accounting for. 0:11:08.920 --> 0:11:12.200 UM Yeah, So so absolutely, the answers were were evasive. 0:11:12.240 --> 0:11:14.480 People some people didn't want to talk about it. Therese 0:11:14.520 --> 0:11:17.640 gave answers that were just that we're just wrong. I 0:11:17.640 --> 0:11:20.480 think maybe just because they didn't know. Because these trades 0:11:20.480 --> 0:11:23.520 are pretty pretty complex. Anybody who wasn't who didn't really 0:11:23.559 --> 0:11:27.480 specialize in it, uh, could easily misunderstand. And you could 0:11:27.480 --> 0:11:30.200 tell them that you could you could run into a 0:11:30.200 --> 0:11:32.240 situation where they don't really understand what they're talking what 0:11:32.400 --> 0:11:35.000 what how to value these trades. So some of the 0:11:35.000 --> 0:11:39.160 answers I got, I assumed we're just uninformed answers rather 0:11:39.200 --> 0:11:42.559 than attempt to hide. But when I talk to people 0:11:42.559 --> 0:11:46.040 who did understand, is that the answers were clearly evasive 0:11:46.640 --> 0:11:51.040 and and uh you know was like political were used? 0:11:51.679 --> 0:11:54.959 When when? When? When I asked about it? So all 0:11:55.000 --> 0:11:58.320 of these facts to me, and I want to get 0:11:58.320 --> 0:12:00.400 to the point where you begin to process is of 0:12:00.559 --> 0:12:03.920 um calling the hotline and becoming whistleblower. First, I want 0:12:03.920 --> 0:12:06.920 to take a quick moment for a word from our sponsors, 0:12:07.160 --> 0:12:09.319 but knowledge to work and grow your business with c 0:12:09.520 --> 0:12:13.679 i T from transportation to healthcare to manufacturing. C i 0:12:13.760 --> 0:12:17.520 T offers commercial lending, leasing, and treasury management services for 0:12:17.600 --> 0:12:20.520 small and middle market businesses. Learn more at c I 0:12:20.559 --> 0:12:24.199 T dot com Put Knowledge to Work. And we're back 0:12:24.440 --> 0:12:28.880 with Eric ben Artzief, former risk analyst at Deutsche Bank 0:12:29.040 --> 0:12:32.880 and a whistleblower. So walk us through the process. You 0:12:32.920 --> 0:12:36.200 talk about calling the hotline when you see that there's 0:12:36.280 --> 0:12:40.120 this major unresolved issue with the value of these derivatives. 0:12:40.600 --> 0:12:43.840 What how does that actually work? Walk us through what 0:12:43.920 --> 0:12:49.240 the process is like becoming a whistleblower essentially, So, UM, 0:12:49.600 --> 0:12:52.439 the hotline, there's a number. You call the number and 0:12:52.880 --> 0:12:55.800 it's supposed to be operated by by third party ex 0:12:55.800 --> 0:12:59.000 turn off to the bank, I believe so to to 0:12:59.080 --> 0:13:00.960 the best of my memory, I talk to somebody outside 0:13:00.960 --> 0:13:04.839 of the bank and um and they just take down 0:13:04.920 --> 0:13:08.640 your concerns. That's what you don't You don't really you 0:13:08.679 --> 0:13:11.720 have to express, you know, a fairly complex issue to 0:13:11.800 --> 0:13:14.520 somebody who doesn't really understand what it is, but and 0:13:14.800 --> 0:13:17.200 then hope that that somebody will get back to you. 0:13:17.720 --> 0:13:19.559 It telt a little bit like kind of screaming into 0:13:19.559 --> 0:13:25.640 the dark, but eventually, actually pretty quickly I was contacted 0:13:25.720 --> 0:13:29.600 by by the legal department, by the compliance department, so 0:13:29.720 --> 0:13:32.680 that that that part of it worked pretty well. And 0:13:32.720 --> 0:13:35.320 when did you go to the SEC, because I imagine 0:13:35.679 --> 0:13:38.600 once you made that hotline call, you were probably already 0:13:39.040 --> 0:13:42.000 at least a little bit worried about your job at Deutscha. Yeah, 0:13:42.040 --> 0:13:46.000 so my, my, my, my strategy there was to was 0:13:46.120 --> 0:13:49.439 to go in parallel, essentially to be safe. And I 0:13:50.080 --> 0:13:52.600 wasn't sure whether I would be instantly fired after them 0:13:52.640 --> 0:13:55.559 to the hotline. There was always that that concern, so 0:13:55.600 --> 0:13:58.640 I made sure to go almost simultaneously to the SEC 0:13:58.880 --> 0:14:01.800 with information that I had add and to the Holland 0:14:01.840 --> 0:14:05.040 at the same time. So effectively, it was as though 0:14:05.320 --> 0:14:08.520 these two you know, we're talking about March two thousand eleven, 0:14:08.559 --> 0:14:12.120 these two things were being were being raised and and 0:14:12.640 --> 0:14:16.360 I relater realized that there were ongoing investigations both inside 0:14:16.360 --> 0:14:19.720 the bank ended that you see, you know, a year prior, 0:14:20.760 --> 0:14:23.160 but at the time I thought it was starting investigations 0:14:23.160 --> 0:14:27.280 in both. There were other whistleblowers, and yes, as far 0:14:27.320 --> 0:14:30.720 as I understand it, I've never spoken to Matthew Simpson, 0:14:30.760 --> 0:14:33.240 who is I believe he is the other whistleblower. And 0:14:33.280 --> 0:14:36.600 apparently there was another whistle blow before that, so we 0:14:36.720 --> 0:14:39.400 know of at least three three people who who are 0:14:39.560 --> 0:14:44.680 concerns there? But all were identifying the same thing. Apparently 0:14:44.680 --> 0:14:49.240 I didn't I've ever seen the concerns that that Matthew 0:14:49.240 --> 0:14:52.680 Simpson order the third person raised, and there I believe 0:14:52.720 --> 0:14:55.760 there might have been other whistle blowers as well. They 0:14:55.840 --> 0:15:00.000 might have raised issues that are related or similar. Um, 0:15:00.080 --> 0:15:02.440 these businesses are very complex, you could use there are 0:15:02.480 --> 0:15:05.760 lots of different risks that you can look at. Um, 0:15:05.800 --> 0:15:08.040 the trades were, uh, you know, I'm going to be 0:15:08.080 --> 0:15:11.320 a little bit technical here. These will bespoke leverage super 0:15:11.360 --> 0:15:14.080 senior trades, which is an animal that I didn't really 0:15:14.080 --> 0:15:17.480 think existed before I joined Deutsche Bank. So they were 0:15:17.560 --> 0:15:20.440 very very There were different kinds of risks there, and 0:15:20.520 --> 0:15:23.520 so I wouldn't be surprised this. Other whistle blowers raised 0:15:23.520 --> 0:15:28.440 concerns over other valuation issues, such as quanto. I've heard 0:15:28.440 --> 0:15:30.560 that that was an issue that which I did not raise. 0:15:30.960 --> 0:15:33.240 I talked specifically about the gap of the gap option, 0:15:33.400 --> 0:15:36.880 but there were other issues with this portfolio. Also, there 0:15:36.880 --> 0:15:40.200 are other portfolios that that we're kind of related and 0:15:40.320 --> 0:15:42.800 might might have been similar, maybe CDs portfolios or other 0:15:42.840 --> 0:15:46.520 CEO put photos that had similar issues in them. Possibly, 0:15:46.920 --> 0:15:49.120 so this is all speculative. I don't really know of 0:15:49.200 --> 0:15:52.480 the other whistle blowers, really like what concerns they raised. 0:15:52.520 --> 0:15:57.280 But presumably since since Matthew Simpson, the other whistle low 0:15:57.280 --> 0:16:00.480 assuming is what Matthew Simpson is is uh was also 0:16:00.480 --> 0:16:03.160 given a whistle Goo award. They they also contributed to 0:16:03.200 --> 0:16:06.840 the to the investigation. So it's March of two thousand eleven, 0:16:07.000 --> 0:16:09.680 you've just gone to the SEC. I'm going to be 0:16:09.760 --> 0:16:13.520 slightly facetious. How quickly were you shown the door at 0:16:13.520 --> 0:16:17.400 Deutsche Bank? I took a few months, actually, so I 0:16:17.400 --> 0:16:22.320 I was fired in two thousand eleven, and in between 0:16:22.400 --> 0:16:25.920 that I was actually, you know, I became I was 0:16:25.960 --> 0:16:30.360 introduced to the to the head of compliance regulatory affairs 0:16:30.520 --> 0:16:33.480 at the bank in New York, Robert Rice, and he 0:16:33.880 --> 0:16:36.600 was one who was handling the investigation. There was also 0:16:36.640 --> 0:16:39.880 an outside law firm, Freed Frank that was so I 0:16:39.920 --> 0:16:42.960 guess they were formally in charge of the investigation and 0:16:43.040 --> 0:16:46.320 cooperation was the compliance department. I'm not I'm not quite 0:16:46.320 --> 0:16:49.640 sure what what that means in terms of what the 0:16:49.640 --> 0:16:52.760 regulatory requirements are in terms of an outside law firm 0:16:53.480 --> 0:16:56.720 investigating this. But in the court during this during the 0:16:57.000 --> 0:17:01.520 next few months, I Robert rice Is the Compliance department 0:17:01.520 --> 0:17:06.159 introduced me to a number of other executives, mostly in 0:17:06.200 --> 0:17:11.600 the finance division, so most mostly accountants, h to explain 0:17:11.760 --> 0:17:14.240 or at least they claimed it was to explain to 0:17:14.280 --> 0:17:17.760 me what what was being done inside the bank. Uh. 0:17:17.800 --> 0:17:20.520 In fact, those meetings were more I felt more away 0:17:20.520 --> 0:17:24.359 of trying to to to glean what I understood, what 0:17:24.440 --> 0:17:27.120 I knew, uh, and to help them get a leg 0:17:27.240 --> 0:17:30.520 up on the on the SEC investigation, and also to 0:17:30.680 --> 0:17:34.080 prevent me a vote, to discourage me nuplicitly discourage me 0:17:34.160 --> 0:17:36.480 from going to the SEC. That's that's how I interpret 0:17:36.520 --> 0:17:40.080 those meetings. Uh. They certainly, I certainly was not satisfied 0:17:40.680 --> 0:17:43.120 with the answers that I was given, and I don't 0:17:43.160 --> 0:17:47.720 think that was I don't think an investigation that with 0:17:48.080 --> 0:17:52.800 the purpose of protecting shareholders would have been conducted differently, 0:17:53.520 --> 0:17:58.080 completely and hundred eighty degrees the Instead of instead of 0:17:58.080 --> 0:18:02.840 trying to download the information and try to essentially belong 0:18:02.920 --> 0:18:05.320 to my concerns, they should have They should have gone 0:18:05.320 --> 0:18:08.320 along and gotten to the bottom of it and corrected 0:18:08.320 --> 0:18:10.760 the what what was wrong? And I'm pretty sure that 0:18:10.920 --> 0:18:14.800 you were trying not to do that. When you were fired, 0:18:14.880 --> 0:18:17.480 what did they say the reason was? They just said 0:18:17.480 --> 0:18:19.320 that it was my job was being moved to Berlin. 0:18:19.920 --> 0:18:22.720 In fact, Bank was opening a quantum center for a 0:18:22.800 --> 0:18:26.480 serious department in Berlin, and I had previously before I 0:18:26.480 --> 0:18:28.200 brew the whistle, I had been offered a job there 0:18:28.760 --> 0:18:32.239 and I expressed interest in moving to Berlin. So so 0:18:32.320 --> 0:18:35.920 this was this was clearly just an excuse. But nobody 0:18:35.920 --> 0:18:39.240 ever said anything about conduct. I had. The reviews that 0:18:39.280 --> 0:18:42.600 I had were positives in the time that I expent 0:18:42.680 --> 0:18:46.480 to Burti Bank, So there was really no reason other 0:18:46.640 --> 0:18:49.160 than I can see no reason other than my whistle blowing. 0:18:49.720 --> 0:18:53.240 Did you regret going to the SEC at that point? Oh? No, 0:18:53.440 --> 0:18:55.359 I I thought I did the right thing, and I 0:18:55.359 --> 0:18:57.880 thought that the right thing would happen, that justice would 0:18:57.920 --> 0:19:02.600 be would be uh served us. Well, let's skip ahead then, 0:19:02.760 --> 0:19:05.600 because you were just in the news at the end 0:19:05.640 --> 0:19:09.320 of last month because there was this huge um whistle 0:19:09.359 --> 0:19:14.320 blower award for you and your fellow whistleblowers, and you 0:19:14.400 --> 0:19:19.040 were offered several million dollars as a reward for shining 0:19:19.119 --> 0:19:22.280 a light on this and you didn't accept it. So 0:19:22.480 --> 0:19:26.200 explain to us how that a word came about and 0:19:26.680 --> 0:19:29.160 whether you're surprised by that, and how you made this 0:19:29.240 --> 0:19:32.200 decision that, as we said in the beginning, seems almost 0:19:32.320 --> 0:19:35.720 unfathomable for a person to make. During the years since 0:19:35.800 --> 0:19:41.359 you know, I started, I blew the whistle and spring 0:19:41.400 --> 0:19:44.080 two thousand eleven really blew blew the whistle before that, 0:19:44.160 --> 0:19:47.719 because I started raising the concerns months before that. I 0:19:47.800 --> 0:19:50.919 gradually became not only attached to the case, but also 0:19:50.960 --> 0:19:55.680 attached to the to the idea of seeing justice carried out. 0:19:55.720 --> 0:19:58.399 And after I was fired, this case was also the 0:19:58.440 --> 0:20:02.239 case of my career. So so you could say that 0:20:02.280 --> 0:20:05.840 my life became completely I wouldn't say dependent, but but 0:20:05.880 --> 0:20:11.639 it became very very much attached to this case. And uh. 0:20:11.680 --> 0:20:13.840 And so in the next few years, I pushed the 0:20:13.920 --> 0:20:17.119 sec along. At some points, um, you know, there was 0:20:17.160 --> 0:20:20.000 there was a point where we heard that where there 0:20:20.040 --> 0:20:22.840 were rumors that the the the case is about to 0:20:22.840 --> 0:20:26.080 be closed. Uh. This was in two thousand and twelve, 0:20:26.720 --> 0:20:29.439 and so we went and worked with the Financial Times 0:20:29.800 --> 0:20:32.199 to get the story out and that really kind of 0:20:32.240 --> 0:20:36.560 gave gave gave new life to this case. So I 0:20:36.560 --> 0:20:39.360 wrote a lot to the to the Francial Times reporters 0:20:39.400 --> 0:20:43.679 in this case did a great job and and ultimately 0:20:43.720 --> 0:20:45.680 over these years, I became you know, I became I 0:20:45.720 --> 0:20:48.960 also became familiar with the the lawyers, the Deutsche Bank 0:20:49.040 --> 0:20:51.280 lawyers who went in and out of the SEC. I followed, 0:20:51.359 --> 0:20:54.720 you know, I was forced to follow their their their 0:20:54.760 --> 0:20:58.639 career paths. You know, I read not to these piece 0:20:58.680 --> 0:21:01.960 in two thousand eleven about uh the SEC the internal 0:21:02.000 --> 0:21:04.920 whistle though Darcy Flynn, that's a story that I think 0:21:04.960 --> 0:21:08.960 hasn't gotten that the attention that it deserved. And you 0:21:09.000 --> 0:21:12.760 know which he drew the whistle to Robert Cruisealny the 0:21:13.280 --> 0:21:15.720 who was head of Enforcement and the ads he's seen 0:21:15.800 --> 0:21:20.880 previously was with Deutsche Bank's General Council al from North America. 0:21:21.440 --> 0:21:24.680 At the same time I followed, you know, Robert Rice 0:21:24.760 --> 0:21:27.399 was appointed, you know, went from being the head of 0:21:27.440 --> 0:21:31.520 compliance to being the Chief Counsul at the SEC. So 0:21:31.520 --> 0:21:36.119 so I realized that a gold was working working against 0:21:36.240 --> 0:21:39.640 me and really was working against the rule of law 0:21:39.720 --> 0:21:42.560 in the United States. So the decision not to take 0:21:42.560 --> 0:21:47.240 the award was essentially a protest against this revolving door 0:21:47.359 --> 0:21:51.200 concept between the SEC and Deutsche Bank. But that kind 0:21:51.200 --> 0:21:53.960 of throws up a question, do you think that there's 0:21:53.960 --> 0:21:58.159 a problem with whistle blowing in general or is it 0:21:58.280 --> 0:22:02.280 something specific because which I had so many people at 0:22:02.280 --> 0:22:06.600 the securities watchdogs, so I think I do think that 0:22:06.600 --> 0:22:10.320 that is the problem, the revolving dual problem. Uh. And 0:22:10.800 --> 0:22:12.760 maybe I shouldn't use the word revolving door. I think 0:22:12.800 --> 0:22:16.760 that the justice for sale problem is widespread. It goes 0:22:16.760 --> 0:22:20.280 beyond just bank. It was especially bad here, but I 0:22:20.280 --> 0:22:23.320 think it happens quite unfortunately. It happens quite a bit today. 0:22:23.960 --> 0:22:26.760 So it's not a problem uh, necessarily with little blowing. 0:22:26.800 --> 0:22:30.639 It's a problem with with with the justice system. I 0:22:30.680 --> 0:22:34.399 think justice and money don't mix very well, and there 0:22:34.440 --> 0:22:37.640 are too many, too many loopholes to which it makes 0:22:37.680 --> 0:22:41.199 its way into the system. Not just insecurities law, but 0:22:41.400 --> 0:22:44.639 the insecurity laws especially bad. So so I think my 0:22:44.680 --> 0:22:48.320 case was especially bad. It was especially latent the fact 0:22:48.359 --> 0:22:51.639 that the victims were clearly the shareholders. There was no 0:22:51.760 --> 0:22:54.800 third party, you know, there was no way to I 0:22:54.840 --> 0:22:58.200 can't see any way to argue that the shareholders benefited 0:22:58.240 --> 0:23:01.560 from this, uh, from the inflation of this portfolio. I 0:23:01.560 --> 0:23:04.480 think this is like end there's the shareholders are clearly 0:23:04.960 --> 0:23:07.960 to me the primary victims. I was just gonna say, 0:23:07.960 --> 0:23:11.359 there is a devil's advocate type argument where you could say, well, 0:23:11.960 --> 0:23:15.440 all right, so Deutsche Bank didn't value the gap risk 0:23:15.520 --> 0:23:18.240 in the way that it should have, but it ended 0:23:18.320 --> 0:23:22.120 up not suffering catastrophic losses anyway. Right, So it made 0:23:22.119 --> 0:23:25.920 it through and its assumptions about the gap risk turned 0:23:25.960 --> 0:23:28.440 out to be correct, and in effect it's saved as 0:23:28.440 --> 0:23:31.359 shareholders a lot of pain. Again, that's just a devil's 0:23:31.359 --> 0:23:33.879 advocate argument for you, but it does get to the 0:23:33.880 --> 0:23:36.040 heart of the point that Joe made earlier, which is 0:23:36.160 --> 0:23:38.600