Jury Finds Deutsche Bank Liable in International Ponzi Scheme Suit

A south Florida jury has found Deutsche Bank liable for failing to flag a Ponzi scheme that allegedly forced several Cayman Island companies into bankruptcy and liquidation.

The Germany-based global banking firm, which faces another lawsuit over the scheme and other accusations of failed internal controls, was ordered to pay $95 million, the federal jury decided Tuesday.

“Defendants, despite being aware of the actual use and diversion of innocent investor funds, perpetuated the fraud through numerous strategies designed to raise new money to repay liabilities to investors or to extend the maturity of pre-existing debt obligations,” reads the complaint. “This prolonged the scheme’s duration and enabled theft on a massive scale in what Defendants knew or recklessly disregarded was a classic Ponzi scheme.”

U.S. District Judge Beth Bloom in Miami noted in her order that $95 million judgment is for one count of negligence. The jury found in favor of the bank on all other counts alleged in the lawsuit. Deutsche Bank has offices in Jacksonville and Miami.

“We are disappointed by the jury’s decision and will continue to defend ourselves against these claims,” Deutsche Bank officials said in a statement Wednesday morning.

The bank may have little trouble paying the judgment. It had more than $1.4 trillion in assets at the end of last year, according to its quarterly financial statements and news reports. But the company also plans to cut jobs, including board members, Reuters and Bloomberg news services reported this week.

The suit against Deutsche Bank was filed in July 2021 by the people in charge of liquidating assets of the companies crushed by the alleged Ponzi scheme.

“The liquidators bring this action to recover damages from defendants for their participation in a global fraud that resulted in hundreds of millions of dollars of investor losses, looting of the companies on a massive scale, and the creation of staggering liabilities for the companies,” an amended complaint reads.

The investors were told by principals with two companies, South Bay Holdings and Biscayne Capital International, that their money was being invested in south Florida real estate developments. But in reality, the properties said to be backing the notes were already heavily leveraged. Effectively, the notes were unsecured because there was no real collateral backing them, the complaint charged.

Bank employees knew the money raised in the scheme was actually being used for other purposes and was funneled to individuals who had no right to the funds, the liquidators said. Deustche Bank also instructed the schemers in ways to avoid anti-money laundering policies, which facilitated the theft, they charged.

Two people involved in the scheme have pleaded guilty to criminal charges. Other cases are continuing. The bank said two years ago that it has cooperated with federal investigators in the criminal probes and that Deutsche Bank is a potential victim of the schemes.

It’s unclear if the bank is self-insured for liability in cases like this. A bank spokesman declined to comment on that. The investors in the Ponzi scheme included at least 13 Caribbean investment management firms, holding companies and others, but court records do not indicate if insurance companies were part of or had invested in any of the firms.

At least one international insurer has strong ties with the bank. Reuters reported in 2020 that Zurich Insurance had renewed its contract with Deutsche Bank to offer life insurance and property/casualty and liability insurance to bank customers in Germany.