Ex-Deutsche Bank Head Russia Trader Accused of Stock Rigging
20 December 2016 Updated 21 December 2016
Yuri Khilov, the former head of Deutsche Bank AG’s Russian equity-trading desk, allegedly earned more than $4 million by engaging in market manipulation from 2013 to 2015, using accounts that he opened in his relatives’ names.
Khilov is accused of booking trades in the name of the lender’s London office and then buying and selling stocks for his relatives within minutes, “earning a positive financial result” at the expense of his employer, the Bank of Russia said in a statement Tuesday. The central bank said it worked on the investigation with Germany’s Bafin regulator, which declined to comment. Khilov, who has since left the bank, also declined to comment.
“The Bank of Russia has sent the corresponding materials from the probe to law enforcement agencies,” the central bank said. Valeriy Lyakh, the head of the central bank’s market violations monitoring department, told reporters, that a one-year statute of limitations prevents the central bank from fining Deutsche Bank for market manipulation.
The Frankfurt-based lender was already grappling with a range of regulatory woes including U.S. probes into mirror trading from its Russian office. The Khilov case is unrelated to that scandal, Lyakh said. Chief Executive Officer John Cryan pledged almost a year ago to “speedily” resolve the bank’s legal and regulatory matters, while aiming to cut costs by pulling back from some trading businesses and countries.
Internal Investigation
“Deutsche Bank has conducted an internal investigation into the activities of the former employee and provided the market regulator with its results,” the German lender said in a statement. “We remain committed to working to detect and combat misconduct.”
Lyakh said Khilov and his relatives earned about 255 million rubles ($4.1 million) from 2013 to 2015 stemming from the allegedly illicit trades worth as much as 300 billion rubles, making it the largest manipulation case in the central bank’s history. The regulator is investigating whether the suspicious operations date to 2009, he said.
“We were attracted by a significant deviation in the volume of trades, which were always with the same counterparties,” Lyakh said of the investigation.
Khilov’s relatives would buy or sell shares and then Khilov, using Deutsche Bank’s London book, placed orders to push the share price so that they would profit, according to the central bank. The relatives would unwind the trades within minutes, usually using a bid that he made from the London book. They made a profit at the expense of Deutsche Bank’s London branch, which registered a loss of the same amount, the regulator said.
In 2015, Deutsche Bank dismissed several employees accused of carrying out up to $10 billion in suspicious transactions, and this year closed its banking and securities business in Russia. Deutsche Bank is being investigated by U.S. and U.K. authorities over whether its internal controls failed to catch the transactions, which may have moved money out of Russia from 2012 to 2015, people familiar with the matter have said. The firm is also dealing with investigations into its pre-financial crisis mortgage-backed securities business in the U.S. and whether its traders colluded to manipulate currency rates.
Many of the executives who oversaw Deutsche Bank’s operations in Russia at the time no longer work at the lender. Batubay Ozkan, who was head of Russian markets from 2009 to 2015, left the bank earlier this year, as did the Russian unit’s chief operating officer, Raj Tanna, and its CEO, Pavel Teplukin.
Khilov’s superiors in London, head of global markets Garth Ritchie and Max Koep, head of equities for central and eastern Europe, the Middle East and Africa, didn’t respond to e-mailed requests for comment. They have not been linked to either investigation or accused of any wrongdoing.