Deutsche Bank

Major banks convicted in Milan fraud case

Deutsche Bank and three other lenders fined, nine bankers found guilty

PUBLISHED : Thursday, 20 December, 2012, 12:00am
UPDATED : Thursday, 20 December, 2012, 3:19am

Deutsche Bank, JP Morgan Chase, UBS and Depfa Bank have been convicted by a judge in Milan for their role in overseeing fraud by their bankers in the sale of derivatives to the city.

Judge Oscar Magi yesterday ordered that about €90 million (HK$926 million) of assets be seized from the banks and that the firms pay sanctions of €1 million each. He also convicted nine bankers of fraud.

The trial, the first of its kind in Italy, was seen as a litmus test for hundreds of local governments facing big losses from complex financial contracts.

The convictions come as global authorities investigate claims that more than a dozen banks altered submissions used to set benchmarks such as Euribor and Libor to profit from bets on interest-rate derivatives. UBS was fined US$1.5 billion by US, British and Swiss regulators for trying to rig global interest rates.

In Italy, opaque derivatives fashioned by securities firms are costing taxpayers more than €1.3 billion, according to June data from the central bank.

"This is part of a pattern that indicates there was no section of the financial system that was free of illegality," Christopher Taylor, a former executive director of the Municipal Securities Rulemaking Board in the US, said before the ruling.

The banks had been on trial since May 2010, accused of defrauding Milan by hiding how much they made on the derivatives. They denied the charges and settled with the city government in March, agreeing to unwind interest rate swaps, which adjusted payments on €1.7 billion of bonds sold by the city in 2005.

Under an Italian law that came into effect in 2002, firms can be convicted if they fail to demonstrate they had adequate mechanisms to prevent the crimes for which their employees are found guilty.

The judge will publish the reasoning for his ruling within 90 days, and the parties can appeal against the judgment.

Deutsche Bank said it believed it did nothing wrong and would appeal against the ruling.

Additional reporting by Reuters