Pomerantz Secures Major Victory for Investors in Case Against Deutsche Bank

POMERANTZ MONITOR | MAY JUNE 2022

“This case has been particularly meaningful to me, given the misconduct at issue — Deutsche Bank’s lending and servicing of Jeffrey Epstein’s accounts — despite knowledge that he sexually abused at least 40 girls.” — Partner Emma Gilmore

Pomerantz clinched a significant victory for investors in a securities fraud class action brought against Deutsche Bank for its false and misleading representations about the Bank’s Know Your Customer procedures—an important aspect of the Bank’s anti-money-laundering processes. On May 18, 2022, Judge Jed S. Rakoff of the United States District Court for the Southern District of New York denied in large part defendants’ motion to dismiss all claims in Karimi v. Deutsche Bank AG, in which Pomerantz serves as sole Lead Counsel.

The complaint alleges that during the relevant Class Period, Deutsche Bank and several of its executives, including its CEO, made materially false and misleading statements about its anti-money-laundering (“AML”) deficiencies and failed to properly monitor or gave exemptions to customers it considered high risk, such as financier and accused sex offender, Jeffrey Epstein. For example, defendants repeatedly assured investors that Deutsche Bank had “developed effective procedures for assessing clients (Know Your Customer or KYC) and a process for accepting new clients in order to facilitate comprehensive compliance,” and insisted that “[o]ur KYC procedures start with intensive checks before accepting a client and continue in the form of regular reviews.” Defendants also claimed Deutsche Bank’s “robust and strict” KYC program “includes strict identification requirements, name screening procedures and the ongoing monitoring and regular review of all existing business relationships,” with “[s]pecial safeguards… implemented for…politically exposed persons.”

In truth, however, far from implementing a “robust and strict” KYC program with “special safeguards” for politically exposed persons (“PEPs”), during the Class Period, defendants repeatedly exempted high-net-worth individuals and PEPs—including unsavory figures like Jeffrey Epstein and individuals sponsoring terrorism—from any meaningful due diligence, enabling their criminal activities through the use of the Bank’s facilities. That practice commenced with Deutsche Bank’s former CEOs onboarding, retaining and servicing Russian oligarchs and PEPs reportedly engaged in criminal activities.

For example, despite widespread coverage of Epstein’s child sex trafficking and abuse, Deutsche Bank’s executives onboarded Epstein as a client in 2013, enabling his criminal activities to not only continue, but also to flourish. In addition to opening and servicing wealth-management accounts for Epstein, Deutsche Bank also provided loans to Epstein and his businesses. Epstein was onboarded based on the lucrative business he would generate for the bank, with Deutsche Bank estimating “flows of $100-300 [million] overtime [SIC] (possibly more) w/ revenue of $2-4 million annually over time….” Despite knowing that by 2011, “40 underage girls had come forward with testimony of Epstein sexually assaulting them,” Deutsche Bank remained “comfortable with things continuing” with Epstein, “not[ing] a number of sizable deals recently.” One of several confidential witnesses with knowledge of Deutsche Bank’s KYC processes explained that, after Epstein was onboarded, decisions about whether to continue keeping him as a client were repeatedly escalated, including to Deutsche Bank’s Reputational Risk Committee and members of Deutsche Bank’s Executive Committee for the Bank’s Global Wealth Management. Despite these warnings, Deutsche Bank repeatedly approved retaining and servicing Epstein. From the time of Epstein’s onboarding, the relationship was classified by Deutsche Bank as “high-risk” and therefore should have been subject to enhanced due diligence. Instead, in a sordid twist of irony, the Bank designated Epstein an “Honorary PEP.”

Defendants made a number of arguments that Pomerantz defeated. For example, defendants argued that Deutsche Bank’s representations to investors about their Know Your Customer procedures were aspirational and immaterial and that, in any event, the investing public was provided with more than enough information to understand the state of Deutsche Bank’s AML and KYC processes (the so called “truth-on-the-market” defense). Pomerantz successfully countered that defendants’ representations were material to investors because, by exempting PEPs and other high-risk individuals from any meaningful KYC procedures, the risk to the Bank’s reputation and the risks of criminal and civil liability were significantly heightened. The materiality of defendants’ statements was also demonstrated by defendants’ repeated discussion of these topics throughout the Class Period. Pomerantz successfully defeated defendants’ “truth-on-the-market” argument that investors knew Deutsche Bank’s AML procedures were not always effective, explaining that such defense on this record was intensely fact-specific and improperly raised at the motion to dismiss stage, particularly given Deutsche Bank’s affirmative representations of compliance made throughout the Class Period.

Judge Rakoff set a trial date for November 2022.

Partner Emma Gilmore, who leads the litigation, said, in response to Judge Rakoff’s decision, “This case has been particularly meaningful to me, given the misconduct at issue – Deutsche Bank’s lending and servicing of Jeffrey Epstein’s accounts – despite knowledge that he sexually abused at least 40 girls.”