Four former Deutsche Bank AG traders won an employment lawsuit as a judge said the bank didn’t have processes in place to prevent conflicts of interest when submitting data to calculate interest-rate benchmarks.
The bank must reinstate the employees, who made submissions for Euribor and Swiss Franc Libor, and pay their salaries, Presiding Judge Annika Gey at the Frankfurt Labor Court said today. The bank had argued the four exchanged improper instant messages with derivative traders at the lender about what data to submit to allow them to make more profit.
While “collusion between rate submitters and derivative traders could be a reason for dismissals” and such communications may have happened, Gey said the bank “didn’t have adequate internal rules and controls in place and didn’t see to it that rate submitting and derivative trading was adequately separated.”
Regulators around the globe are investigating whether more than a dozen lenders colluded to rig benchmark interest rates, including the London and Euro-area interbank offered rates. Barclays Plc, UBS AG and Royal Bank of Scotland Group Plc have paid a total of about $2.5 billion in fines after admitting wrongdoing.
Deutsche Bank has fired at least seven employees over suspected misconduct in connection with rates. The bank, continental Europe’s largest by assets, said in February that while it would fire or suspend workers that acted inappropriately, it wouldn’t identify individuals.
Today’s ruling shows that traders embroiled in the rate- rigging scandal may be able to argue that their employers didn’t put in place safeguards to avoid suspicious behavior.
“If your reputation is tarnished and you suffer all sorts of financial and non-financial damage, then you might consider looking at whether there was a breach in the duty of care that the employer has,” Steven Francis, a lawyer involved in the Libor investigations at Reynolds Porter Chamberlain LLP, said in a telephone interview in London today.
Rulings such as this may cast doubt on any action by regulators to fine or sanction the individuals, Francis said. “You get the real possibility of different findings relating to the same state of affairs.”
Deutsche Bank regrets the court’s decision and believes “its actions were justifiable,” said Christian Hoefs, a lawyer for the Frankfurt-based lender. “We will wait for the written judgment and will then decide whether we will appeal.”
The court found that the bank’s internal organization and the fact that rate submitters were also trading partly with derivatives created a “grave interest of conflict,” Gey said. The bank also restructured its rooms so that traders and submitters sat closer together, she said.
The instant messages at issue, which weren’t disclosed, were written in 2011. Some of them were exchanged with Christian Bittar, the Deutsche Bank trader fired in 2011. The messages included questions asking what rates would be favorable for derivatives traders, Gey said.
The former traders in today’s case had told the court the company encouraged them to take their own trading positions into account as well as positions held by the bank’s derivatives traders when considering what rate to submit.
The lender looked at the messages as part of the internal probe it started in 2011. The traders argued that since they were already sanctioned in early 2012 when Deutsche Bank cut their 2011 bonuses by 40 percent, they shouldn’t have faced dismissal the following year.
Deutsche Bank implemented the internal rules only in March of last year for Libor submitting and in July of last year for Euribor, according to the court. Some of traders who sued even helped drafting them. One of them became a back-up supervisor for Euribor rates from July 2012 to October 2012, Gey said.
“There was no case, not even one, where any actual manipulation of rates was found,” Peter Roelz, a lawyer for the traders, told the court. “Each and every rate my clients submitted was reviewed and it was established that it was in line with market findings at the time.”
Three of the employees made submissions for Euribor and one for Swiss Franc Libor.
The trader working on the Libor Swiss Franc rates told the court that there were already plans at the bank to fire him in 2011. A high-ranking member of the bank’s legal department came to the conclusion that the dismissal wouldn’t sand in court. Instead he was suspended for a few months and later got his job back.
Deutsche Bank said a year ago that its internal probe found misconduct by individual employees though no wrongdoing by current or former board members.