Russia's Central Bank uncovered a series of unlawful financial operations worth billions of rubles conducted by an employee of Deutsche Bank's Moscow branch over the period of 2.5 years.
The authorities claimed that an ex-head of the stock trading department of Deutsche Bank's Moscow office Yuri Khilov repeatedly manipulated stock markets through illegal trades. Valery Lyakh, one of the Central Bank officials, told journalists yesterday that the authorities confirmed a number of manipulations conducted by Khilov over the period between 2013 and 2015 that resulted in profits of over 300 billion rubles. The regulator claims that these manipulations significantly damaged Deutsche Bank's (NYSE: Deutsche Bank [DB]) operations at that period.
After a thorough investigation of both Russia's Central Bank and Germany's Federal Financial Supervisory Authority, it was confirmed that Yuri Khilov conducted illegal trades using accounts that belonged to his relatives - his wife, Natalya Khilova, and her parents, Igor and Tatyana Novikovy - while he was abusing his preferential access rights to Deutsche Bank's trading accounts thanks to his position in the company. The authorities said that these trades generated a profit of more than $4 billion for Khilov and his family during a period of 2.5 years.
According to Russia's Interfax, the transactions were conducted by Khilov through the accounts of Deutsche Bank's London branch that he had access to. The transaction scheme was described as follows: one of Khilov's relatives purchased or sold securities via their private trading accounts while Khilov, under Deutsche Bank's name, carried out a reversal transaction with the private account of his family member in such a way that benefitted them most. For Deutsche Bank, these transaction were nothing but additional losses. This way, Khilov and his family could create an artificial trading situation that allowed them to easily generate profits or, in other words, manipulate the stock market.
Khilov targetted the most high liquidity stocks of Russia's biggest companies like Gazprom (MICEX: Gazprom [GAZP]), Rosneft (LSE IOB: Rosneft [ROSN]), Lukoil (MICEX: Lukoil [LKOH]), VTB (MICEX: VTB [VTBR]) and Sberbank (MICEX: Sberbank [SBER]). The regulators added that Khilov's trades disrupted trade volumes and contributed to slight changes in stock values. However, it is unclear why the broker companies that opened accounts for Khilov and his relatvies did not find the transactions with such huge profits consistently coming from Deutsche Bank suspicious. Now, Russian authorities plan a separate investigation into the activities of those broker companies to possibly uncover similar cases.
The Wall Street Journal mentioned that Khilov had been working for Deutsche Bank in Moscow for 15 years before quitting in July 2015, when the branch got in the middle of the "mirror trading" scandal. However, the authorities emphasized that Khilov's case was unrelated to the bank's ongoing probe into the mirror trades that involved unlawful transfer of over $10 billion through Deutsche Bank without alerting the Russian authorities.
In summer of 2015, Deutsche Bank started a big internal investigation against its Moscow branch that helped the company to uncover the mirror trading scheme. Khilov, together with a number of employees left the company at that time, though it was not immediately recognized as something suspicious. Shortly after the scandal, the bank's co-CEOs Anshu Jain and Jürgen Fitschen stepped down and were replaced by the current chief John Cryan, who promised to "clean up the bank" and closed the investment banking department in Moscow.
The newly-uncovered trading scheme is yet another legal worry of the biggest German lender that have been recently caught up in a number of legal scandals. Apart from the ongoing probe into the mirror trades, Deutsche Bank is still in the talks over its $14 billion fine from the U.S. Department of Justice that accused the lender of illegal manipulations of mortgage-related securities prior to the 2008 financial crisis. Next to that, the bank's name has also been mentioned among those lenders that participated in the bank "cartel" involved in strategically pushing Euribor rates to gain benefits.
Reuters says that the findings of the Russian Central Bank are "an embarrassment" for the German bank as it seems like the lender repeatedly failed to control the Moscow operations. Considering that the scandal around mirror trades resulted in a serious conflict within the bank, Khilov's case is quite unlikely to go unnoticed in the company, as well.
The Central Bank has already sent the materials of the probe to the law enforcement agencies, reports Interfax. At the moment, it is still unclear whether Deutsche Bank will receive a fine for Khilov's manipulations.
Deutsche Bank and Yuri Khilov declined to comment.