Deutsche Bank’s spoofing scandal looks to be far from over, with the German bank and its U.S.-based securities brokerage unit hit with a proposed class action on Monday over a scheme allegedly conducted by two of the bank’s traders throughout 2013 to manipulate Treasury and eurodollar futures.
The lawsuit from Illinois-based Rock Capital Markets alleges that two of Deutsche Bank’s Tokyo-based traders were engaging in spoofing – sending false supply and demand signals to the markets and then canceling them before execution. The result was that the prices of Treasury and eurodollar futures were artificial, and served to benefit the bank’s trading positions at the expense of other investors.
The new class action is a continuation of the legal troubles that alleged spoofing has caused for Germany’s biggest bank, with Deutsche Bank reaching a settlement with the U.S. Commodity Futures Trading Commission on the issue last week. The bank agreed on Friday to pay more than $10 million in penalties to the CFTC regarding data violations and spoofing charges.
The suit also states that this is not the only time that Deutsche Bank has been caught spoofing, saying that the bank was fined $30 million by the CFTC in January 2018 for spoofing precious-metals futures.
In this most recent incident, Rock Capital alleges that two Deutsche Bank traders were trading from Tokyo during U.S. overnight hours, placing legitimate Treasury or eurodollar futures contracts at close to the best price. At the same time, the traders were placing and then canceling much larger illegitimate, or “spoof,” orders on the opposite side of the market in order to have the actual orders filled at more favorable prices.
The suit alleges that the traders “intended to inject false information about supply and demand into the marketplace and to artificially move prices up or down” to benefit their own trades and positions, at the expense of other traders on the same market.
Rock Capital argues that the Deutsche Bank traders “acted intentionally—and, even if they are found to not have acted intentionally, then at least acted recklessly—in employing the manipulative and deceptive device to procure ill-gotten trading profits at the expense of plaintiff and the class. The risk that the defendants’ spoof orders could mislead other market participants into believing there was genuine interest in purchasing or selling the specified number of contracts represented by the defendants’ spoof orders was so obvious that the defendants must have been aware of it.”
Rock Capital is looking to represent a class of individuals or entities who traded in the relevant Treasury or eurodollar futures between Jan. 1, 2013 and Dec. 31, 2013 – a group that could be significant, given that the information already available shows that hundreds of individuals were directly impacted.
Deutsche Bank could not be reached for comment at the time of publication.