Deutsche Bank Wednesday reached a settlement with
state regulators in Massachusetts to pay 17.5 million dollars over
its alleged failure to inform customers about conflicts of interest
in investments they made ahead of the financial crisis of 2007-2008.
The failure involved investments in certain instruments known as collateralized debt obligations, or CDOs, also known as Carina. Deutsche Bank officials did not disclose that a trading group at the firm and a hedge fund had structured the product, the Secretary of the Commonwealth William Galvin said.
In the lead up to the crisis and ensuing recession, a broad swathe of American banks and investment houses bundled risky mortgages and sold them to investors.
As the mortgage holders went bankrupt because they could not afford high mortgage payments, the US economy nosedived and the investments lost their value.
"Unless (Deutsche Bank) had disclosed these conflicts of interest, investors coud not have known of them and would not have invested in Carina," Galvin's office wrote. "In less than one year, rating agencies downgraded Carina's notes to junk status, resulting in substantial losses."
A spokesman for the bank, Renee Calabro, said: "We are pleased to have reached this settlement and put this matter behind us."
Since the economic crash, regulators and US justice officials have gone after the risky investment practices. The most prominent case was Goldman Sachs, which in 2010 paid a settlement of 550 million dollars to the Securities Exchange Commission that regulates New York's Wall Street.
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