Finance

Deutsche Bank set to face investor lawsuits over allegations it enabled US Ponzi scheme

Judges in New York and Miami ruled that investor lawsuits could advance against Germany’s Deutsche Bank for allegedly ignoring warnings that it was helping finance a real-estate-linked Ponzi scheme.

Cayman Islands liquidators won rulings on 29 March and 30 March in separate lawsuits in Florida and New York alleging that Deutsche Bank helped facilitate a wide-ranging fraud by Biscayne Capital International, an investment advisory firm.

Miami-based Biscayne told investors it was raising capital through offshore vehicles for real-estate developments in South Florida. In reality, Biscayne’s principals used the funding they raised to pay off earlier investors and enrich themselves, according to federal prosecutors. In 2018, the firm collapsed into liquidation, according to Justice Department charges in September against three men associated with the alleged scheme.

Deutsche Bank was sued for $200m by offshore liquidators for several Biscayne entities and for Madison Asset, a related broker and investment adviser that is in liquidation in the Caymans for the benefit of its investors.

Federal judges said on 30 March the lawsuits had put forth plausible claims against the investment bank and could proceed, potentially allowing for discovery into its dealings with the alleged fraud.

“We will continue to vigorously defend ourselves against these claims,” a Deutsche Bank spokesman said on 31 March.

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The liquidators alleged that Deutsche Bank structured accounts for Biscayne to circumvent the bank’s due diligence and know-your-customer requirements and facilitated multiple fraudulent swap transactions that helped delay defaults.

While Deutsche Bank characterised its actions as ministerial, Judge Beth Bloom of the US District Court in Miami said the lawsuit adequately alleged the bank’s employees “affirmatively assisted the Individual Wrongdoers by instructing them on how to circumvent the Know Your Customer monitoring systems.”

In a separate lawsuit, Judge Mary Kay Vyskocil of the US District Court in New York said that Madison’s liquidators had made “sufficient factual allegations from which to reasonably infer that Deutsche Bank took at least some positive steps in the carrying on of Madison’s alleged fraudulent business.”

Beginning in 2008, Deutsche Bank had started to provide custody banking services to Biscayne, which had $12m in total assets and was developing multiple large residential developments in South Florida. The company also issued millions in debt to investors through a Cayman Islands-domiciled shell company to help fund its planned luxury retirement communities and timeshare lots.

In 2016, Biscayne settled with the Securities and Exchange Commission, resolving allegations the company failed to disclose to its debt investors that it was funnelling cash into insolvent real-estate projects that weren’t generating enough cash to pay off the debts it had taken on.

Deutsche Bank closed its accounts associated with Biscayne in 2017, after the SEC order, and the company began to liquidate in 2018.

Federal prosecutors in September unsealed an indictment in federal court against Biscayne’s two founders and their partner for conspiring to defraud investors and financial institutions as part of an international fraud scheme.

The parties are engaged in plea negotiations with the federal government and a status conference is set for the beginning of April, court records show.

Write to Alexander Saeedy at [email protected]

This article was published by Dow Jones Newswires

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