Deutsche Bank CEO Faces Lawsuit in Derivative Deal Controversy

The CEO, Christian Sewing, is under scrutiny for his involvement in a banking scandal linked to derivative transactions. A former banker is suing Germany, asserting that he has become a scapegoat in this complicated situation.

According to insiders, the allegations have prompted a review by German authorities. Deutsche Bank, however, claims that the lawsuit lacks merit.

In 2013, Deutsche Bank assigned Sewing, who was then relatively new and rising within the ranks, to investigate sensitive derivative transactions that had come under fire in Italy. Fast forward more than a decade, and Sewing is now facing a lawsuit from a former employee concerning his handling of that very investigation. Reports indicate that this lawsuit has encouraged scrutiny over how both Deutsche Bank and Sewing, acting as auditors at the time, managed the case.

Dario Sirardi, the former banker involved, has claimed that his reputation was harmed, filing a lawsuit for €152 million (approximately $178 million) against the bank responsible for the audit. Even though Deutsche Bank has not found any fraud during its recent investigations into these transactions, the lawsuit is set to be heard in a Frankfurt court later this year. This comes as Sewing has been recognized for helping to repair Deutsche Bank’s reputation since taking over as CEO in 2018, particularly after the financial crisis.

In 2022, Sirardi and five other former bankers were acquitted after facing convictions in an Italian court for conspiring with Monte dei Paschi, using complex derivatives to obscure losses. German regulators have also shown interest in the accounting practices related to these transactions.

Sirardi’s claims suggest that Deutsche Bank’s management, including Sewing as chief auditor, concealed the risky nature of these transactions, which allegedly had implicit approval. In Deutsche Bank’s recent annual report, the lawsuit was mentioned as a significant civil litigation issue.

Chairman Alexander Weinerend indicated in a statement that the board fully supports the management in addressing this lawsuit, asserting that the details surrounding this long-standing issue have been extensively discussed.

Sewing has chosen not to comment on the ongoing case through his spokesperson. Under his leadership, he has managed to steer Deutsche Bank back into profitability and navigate various legal challenges. He was re-elected for a third term earlier this year, a move viewed as critical for Germany’s economy.

Legal documents related to the lawsuit have come to light, providing new insights into Sirardi’s claims and how Germany’s largest banks are responding. Sirardi, after leaving Deutsche Bank, has taken on prominent roles in the finance sector, including leading the Swiss-Family Investment Company.

Sirardi’s lawyers argue that Sewing and the bank turned him and a few others into scapegoats, preventing them from clearing their names. Back in 2014, Deutsche Bank had criticized its trading team for inadequate disclosures regarding audit findings connected to the Italian regulator.

Allegations have arisen that vital information about the bank accruing significant bonds—which allowed it to classify the transaction as a loan rather than as a derivative—was withheld. This maneuver purportedly helped the bank minimize capital reserves and boost profits.

Schiraldi contends that there was no concealment involved, maintaining that the transaction was well understood. Meanwhile, Deutsche Bank has acknowledged some audit failures but declined to discuss specifics regarding communications with regulators.

Sirardi’s legal team asserts that the trading audit did yield significant results but only presented partial documentation during the ongoing dispute. As the bank prepares its defense, a member of its management team is reviewing past emails and documents, as reported by sources familiar with the matter.

Deutsche Bank has stated that the lawsuit’s allegations are unfounded, describing the audit process as thorough and independent, with the relevant executives having appropriately fulfilled their duties. “We stand by the core audit findings,” a spokesperson noted.

The case is set to return to German courts later this year, although there remains a possibility for an out-of-court resolution.

In response to the lawsuit, the bank described the claims as “false” and an attempt to damage the reputation of its executives.