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Deutsche Bank faces fraud probe

The Financial Supervisory Service plans to ask the prosecution to investigate Deutsche Bank AG and several individual investors for allegedly engaging in fraudulent stock trading, sources told The Korea Herald on Wednesday.

The financial regulator has completed its investigation into the Germany-based investment bank’s brokerage unit in Hong Kong. It plans to refer the case to the prosecution in the coming weeks, they said.

Deutsche Bank has been suspected of reaping about 100 billion won ($89.2 million) last November by intentionally pulling down prices by dumping a great number of shares on the Korea Exchange after purchasing a fund which guarantees high return when the prices plunge.

Its allegedly illegitimate stock trading has incurred huge losses of other investors and the scheduled punitive action by the Korean watchdog will come as a stern warning against foreign rule-violators including manipulators.

A Deutsche Bank AG logo is seen on one of the bank's branches in Frankfurt, Germany. (Bloomberg)
A Deutsche Bank AG logo is seen on one of the bank's branches in Frankfurt, Germany. (Bloomberg)


“We will send the case to the prosecution. I expect the timing will be late January or February,” said a Financial Supervisory Service official.

“Unless the bank is acquitted after the prosecution’s investigation, it will also face banking disciplinary rules as well as the planned securities-related punishment,” he added.

The watchdog plans to make public details after convening a panel meeting of the Securities & Futures Commission in several weeks.

While the panel is destined to fine-tune the sanction level, it has been found that FSS officials have internally agreed on the necessity of reprimanding the kind of practices through criminal investigation.

Should the prosecution levy fines on Deutsche Bank, the FSS will be entitled to suspend part of its operations for one or several months.

There is also a possibility that the prosecution will demand imprisonment against the investment bank’s staffers who initiated the trading. The case also could be linked to business suspension under regulatory rules.

During the Nov. 11 trading session, the benchmark KOSPI index fell nearly 3 percent due mainly to foreigners’ massive selling.

The FSS and the Korea Exchange had confirmed that most foreign selling that day came from Deutsche Bank accounts.

According to the exchange, the bank was a top seller in most large-cap shares, such as Samsung Electronics, Hyundai Motor, and KB Financial Group.

KOSPI plunged 48 points to 1,914.73 during the last two-minutes ― between 2:59 p.m. and 3:01 p.m. ― on the day.

By Kim Yon-se (kys@heraldcorp.com)

 

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