Stigler Center Talk: Deutsche Bank Whistleblower on the SEC and Revolving Doors

Eric Ben-Artzi, the former Deutsche Bank risk officer turned whistleblower who rejected a multi-million dollar award from the SEC, will give a talk at the Stigler Center on Thursday via video conference.

 

 

Eric Ben-Artzi
Eric Ben-Artzi

Deutsche Bank whistleblower Eric Ben-Artzi became a global media sensation two months ago, when he publicly rejected a multimillion dollar award from the Securities and Exchange Commission—his share of a $55 million settlement between the SEC and Deutsche Bank—via an op-ed in the Financial Times.

 

A few years before that, in 2010, Ben-Artzi worked as a risk officer at Deutsche Bank when he noticed that the bank had overvalued its derivatives portfolio at the height of the financial crisis, hiding potential trading losses (estimated at more than $1.5 billion by the SEC and up to $12 billion by Ben-Artzi and his fellow whistleblowers). Fearing that misstatement of the bank’s financials could have dire consequences for the bank, he made a dramatic decision to alert the bank’s internal hotline as well as the SEC. Several months later, he was fired.

 

Ben-Artzi was one of three whistleblowers who came forward in 2010-2011 and notified regulators of improper accounting at Deutsche Bank. In 2012, after he learned that the SEC was going to drop the case and not press charges against the bank, he contacted the Financial Times and made the story public. The story got picked up by multiple media outlets worldwide, and reignited the investigation. In May 2015, following a five-year investigation, Deutsche Bank agreed to pay a $55 million fine to the SEC Commission to settle the charges. It did not admit wrongdoing.

 

As a whistleblower, Ben-Artzi was entitled to 15 percent of the settlement under the Dodd-Frank Act. However, he publicly rejected his share of the award—which he estimates at $3.5 million after fees and payments to lawyers, experts and his ex-wife. In his op-ed in the Financial Times, Ben-Artzi explained the reasons for his decision, claiming that the settlement was an unjust penalty imposed on Deutsche Bank’s shareholders instead of the managers responsible for the wrongdoing. He also pointed to the revolving door between Deutsche Bank’s top lawyers and the SEC as a possible explanation for why the SEC decided to not go after the bank’s senior management.

 

On Thursday, October 13, Ben-Artzi will give a talk at the Stigler Center (via video conference). The event will begin at 5:00pm. In it, Ben-Artzi will address his motivations for becoming a whistleblower, the revolving door, and the potential for regulatory capture within the SEC.

 

In a recent conversation with ProMarket, Ben-Artzi spoke about the role incentives and deterrence play in preventing many in Wall Street from reporting misconduct. “The financial industry tends to be ethically neutral, people don’t take an ethical position. That’s probably not going to change, and that’s fine as long as the penalties for breaking the law and for doing unethical things are greater than the rewards. Because there are essentially no penalties, as long as you are high-up enough and haven’t stepped on the wrong toes, and a very large upside to doing the wrong things, you’re going to these things continue. It’s not about changing the ethically-neutral culture in Wall Street—it’s really about changing the behavior of the legal system which is letting them get away with violations.”

 

In his Stigler Center talk, Ben-Artzi will also elaborate on his own experiences with the legal system since he became a whistleblower. “The revolving door is a picturesque and somewhat nice expression for something that is really bad. There’s a system in place today by which regulators, prosecutors, and judges in the U.S. sell justice. Whether it’s the revolving door after they leave or before they join the service, or whether it’s campaign contributions, there are multiple ways in which the legal system is being corrupted. To me, the confluence of money and justice is far worse than in other branches of government.”

 

Register for Eric Ben-Artzi’s talk at the Stigler Center here

 

Disclaimer: The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy.

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