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October 25, 2017

Iowa Part of $220 Million Multistate Settlement with Deutsche Bank for Rigging Interest Rate Benchmarks

LIBOR manipulation hurt government entities and not-for-profits in Iowa and nationwide; IPERS to receive $112,800

DES MOINES – Deutsche Bank will pay Iowa’s largest pension fund more than $112,000, and make payments to any affected Iowa non-profit organizations, as part of a $220 million settlement with 45 state attorneys general for fraudulently manipulating the benchmark interest rate that banks charge each other for short-term loans.

The benchmark rate, called the London InterBank Offered Rate, or LIBOR, affects financial instruments worth trillions of dollars and has a widespread impact on global markets and consumers.

Deutsche Bank defrauded government entities and not-for-profit organizations throughout the U.S., among others, when they entered into swaps and other investment instruments with the bank without knowing that it was manipulating LIBOR—along with other banks on the U.S. Dollar (USD)-LIBOR-setting panel.

Multistate Investigation Revealed Deutsche Bank Manipulated LIBOR
A bipartisan multistate investigation by state attorneys general revealed how Deutsche Bank manipulated LIBOR. The probe revealed Deutsche Bank employees:

  • Improperly made internal requests for LIBOR submissions to benefit Deutsche Bank’s trading positions
  • Attempted to influence other banks’ LIBOR submissions in a manner intended to benefit Deutsche Bank’s trading positions
  • Received communications from inter-dealer brokers and external traders attempting to influence Deutsche Bank’s LIBOR submissions. At times, Deutsche Bank LIBOR submitters and supervisors expressly acknowledged and indicated they would work to implement the requests they received.

Given this conduct, Deutsche Bank LIBOR submitters and management had strong reason to believe that Deutsche Bank’s and other banks’ LIBOR submissions did not reflect their true borrowing rates, as they were supposed to do pursuant to published guidelines, and that the LIBOR rates submitted by the banks did not reflect the actual borrowing costs of Deutsche Bank and other panel banks.

Deutsche Bank employees did not disclose these facts to the governmental and not-for profit counterparties with whom Deutsche Bank executed LIBOR-referenced transactions even though these rates were material terms of the transactions.

IPERS to Receive Nearly $113,000
The Iowa Public Employees' Retirement System (IPERS) will receive a $112,805 payment through the settlement. Deutsche Bank will notify all governmental and not-for-profit entities with LIBOR-linked swaps and other investment contracts with the bank if they are eligible to receive a distribution from the $213.35 million settlement fund. The balance of the fund will be used to pay investigation-related costs and for other uses consistent with state laws.

Deutsch Bank Previously Pleaded Guilty in Federal Criminal Case
In March, a federal judge ordered DB Group Services (UK) Limited, a wholly owned subsidiary of Deutsche Bank, to pay a $150 million fine, which the bank had previously agreed to pay in 2015 when it pleaded guilty to one count of wire fraud for manipulating LIBOR. Also in 2015, Deutsche Bank entered into a deferred prosecution agreement (DPA) with the U.S. Department of Justice that required the bank to pay an additional $625 million criminal penalty, to admit and accept responsibility for its misconduct, and to continue cooperating with the Justice Department’s investigation.

Previous Multistate Barclays LIBOR Settlement
Deutsche Bank is the second of several USD-LIBOR-setting panel banks under investigation by the state attorneys general to resolve the claims against it, and has cooperated with the investigation. Last year, Barclays Bank PLC and Barclays Capital agreed to pay $100 million nationally, as part of a 44-state settlement.

The multistate probe into the conduct of several other USD LIBOR-setting panel banks is ongoing.

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