All eyes on fallout from whistleblower award rejection

September 1, 2016

Sometimes the strongest statement can be made when you turn down an award. Such a statement was made last week by Eric Ben-Artzi when he declined his share of a whistleblower award from the Securities and Exchange Commission (SEC) for reporting that Deutsche Bank had improperly inflated the self-reported values of its portfolio of credit derivatives. Artzi was one of two employees who were scheduled to share in a US$16.5 million whistleblower award. Yet he declined the award and requested that his “share of the award be given to Deutsche and its stakeholders, and the award money be clawed back from the bonuses paid to the Deutsche executives”.

Artzi also complained about the fines levied against the bank in other SEC enforcement actions, all of which have been borne by Deutsche shareholders rather than those he deems responsible … the senior management that led the efforts. He believes that many top executives received their bonuses based on these inflated numbers, and that their actions not only cemented their compensation but also hurt Bank employees because of the fraudulent valuations placed on the bank assets. Yet Artzi goes beyond the above to blame the ‘revolving door’ of SEC officials who came from Deutsche, without ever pointing to any actions by those officials or even if those officials were involved in this enforcement action.

All of this dovetails with recent ‘too big to fail’ commentary on the banking sector and United States enforcement actions against senior management. The Yates Memo has been in force since September 2015 and, although it relates to Department of Justice (DOJ) enforcement actions, if the SEC felt there was criminal activity then the prescripts of the Yates Memo should certainly come into play.

Whatever the outcome of Artzi’s decision, it is believed that his refusal to accept a whistleblower award is the first time that a person entitled to financial compensation for coming forward has declined such an award. It will be interesting to see what the fallout will be.

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