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.
