Reuters Brings a Deustche Derivatives Whistleblower to the Surface

Reuters’s Matthew Goldstein has an eye-raising scoop today, reporting that Deutsche Bank fired a top credit default swaps trader in 2009 after a whistleblower said he had found “substantial trading anomalies” in the trader’s account.

Deutsche quickly fired the trader, Alex Bernand, for “improper trading in one of Bernand’s personal brokerage accounts.” It’s unclear what that means exactly, but it implies that Bernand was inappropriately trying to benefit somehow from what he knew about what Deutsche was doing or what its trading partners were doing.

The bank paid the whistleblower $900,000, but too late: The SEC is already investigating whether Bernand hid trading losses by artificially inflating the value of assets in his portfolio. That’s a Goldstein scoop too. And so is this, getting Deutsche on the record vigorously denying any fraud:

“This complaint, which is over a year old, has been the subject of a thorough investigation, and we believe that any allegations about financial misreporting are wholly unfounded,” said Calabro, who declined to comment on the terms of the settlement with Simpson. “The bank is cooperating with the SEC on its review of the matter.”

Fortunately for Deutsche, it’s got friends in high places.

So who is Bernand? Goldstein reports that he was an important dude:

The firing of Bernand, a one-time rising star in the derivatives world, is something of an embarrassment for Deutsche. In 2006, the bank issued a press release to trumpet his hiring from Bank of America as its global head of credit correlation. At BofA, Bernand had pretty much built the Charlotte, North Carolina-based bank’s structured credit trading business from scratch.

Inside Deutsche, the portfolio that Bernand oversaw from London was called the “exotics book,” because many of the derivatives in the portfolio were tied to complex securities. At its peak, the portfolio was one of the largest on Wall Street with the assets underlying the trades valued in the tens of billions of dollars.

And finds him now:

Bernand, who lives in France, also declined to comment. On his LinkedIn profile, Bernand describes himself as an “independent philanthropy professional.”

Oh, brother.

This timing is interesting:

In an early 2010 regulatory filing, Deutsche attributed some of the rise in the bank’s value-at-risk, or VAR, at the end of 2009 to a “recalibration of parameters in the Group’s credit correlation business.”

Why is this potentially so important? You have to read between the lines a bit here and ask why this story is just coming out now, two and a half years after the fact. It seems that somebody thinks it’s important that it get out there because it’s not being properly investigated.

And it’s significant too because it’s Goldstein who’s reporting it. He’s one of the very best investigative reporters on Wall Street, with a sharp eye for those stories that may be bigger than they immediately seem. Hi, Bear Stearns. Hello, SAC.

In other words, Goldstein’s stories tend to portend. Which means this one’s worth watching.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,