In May 2012, Deutsche Bank admitted it defrauded the U.S. government over the sale of risky mortgages . The bank agreed to pay a $202 million penalty to the U.S. Department of Justice within a month. In order to get housing insurance for its loans from the U.S. Federal Housing Authority (FHA), a subsidiary of Deutsche Bank, Mortgage IT, admitted it lied.
The penalty payment was approved by representatives of the Frankfurt, Germany-based bank and a Manhattan judge representing the U.S. government. The agreement required the bank to admit it failed to follow all federal housing rules when it made considerable profits between 2007 and 2009 from the resale of shaky mortgages through its Mortgage IT subsidiary.
More than 2,000 people worked for the subsidiary at branches in all 50 states. In a statement the Deutsche Bank said it was pleased to put the issue behind it. "This marks a significant step in resolving our mortgage-related exposures," a bank representative said.
The federal lawsuit against the bank tried to regain over $386 million that the U.S. Department of Housing and Urban Development (HUD) paid out in insurance claims and related costs that came from Mortgage IT's approval of over 3,100 mortgages. This number includes 1,400 loans that have defaulted so far.
The lawsuit claimed that Deutsche Bank and Mortgage IT:
- Did not comply with HUD rules that require quality control procedures
- Lied about their supposed compliance
U.S. Attorney Preet Bharara said that the bank and its subsidiary "treated FHA insurance as free government money to backstop lending practices that did not follow the rules."
The German bank also has battled charges of
relating to the Enron scandal. The complaint says the bank helped Enron to establish an off-the-record partnership to bolster stocks. The partnership kept prices high by inflating earnings. Other accusations against Deutsche Bank allege it gave a large amount of money to support the partner, LJM, so it could buy Enron stocks and assets. Additional allegations charge the firm with giving false advice about the value of Enron stock.
Deutsche Bank: History
Deutsche Bank was founded in Berlin, Germany, in 1870. It emphasized foreign trade. Some of its earliest important projects included financing for the Northern Pacific Railroad in the U.S. and the Baghdad Railroad.
The bank grew quickly in the 1880s and 1890s, playing a major role in developing Germany's electrical-engineering industry. Right after the end of World War I, the bank lost most of its foreign assets and it spent much time just holding itself together. It merged with other local banks in 1929, but changed back to Deutsche Bank in 1937. In the years following World War I, the bank continued to expand and make acquisitions.
With the rise of Adolf Hitler the bank fired its three Jewish board members in 1933 and participated in the "aryanization" of Jewish-owned businesses, confiscating 363 by November 1938. It incorporated other banks in places that were occupied by Germany during the war.
Following the war, after breaking up, then reconsolidating, Deutsche Bank AG was established with headquarters in Frankfurt. Between 2001 and 2007, the bank has admitted it engaged in spying on its critics. It went so far as to plan having a "mole" hired at a law firm critical of Deutsche Bank, although the plan was never completely realized.
The bank was a primary player behind the collateralized debt obligation market during the housing bubble from 2004 to 2008. The U.S. Senate Permanent Select Committee on Investigations characterized Deutsche Bank as a "case study" of investment banking's involvement in the mortgage bubble, credit crisis, and following recession. The bank continued to sell bad mortgage bonds to investors, all the while knowing the investments were nearly worthless.
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