Prosecutors join with HK for Deutsche Bank probe

By Lee Hyo-sik

The prosecution said it has agreed with Hong Kong’s financial regulators to launch a joint probe into Deutsche Bank over the German bank’s alleged stock market manipulation that forced the key local index to nosedive in November last year.

The Seoul Central District Prosecutors’ Office said Monday that its investigators held a conference call with officials of Hong Kong’s Securities and Futures Commission (SFC) on May 13.

Participants reached an agreement to jointly investigate Deutsche Bank’s alleged manipulation of stock prices, designed to realize tens of billions won in illicit profits at the expense of other investors, it said.

“We launched a number of joint investigations with law enforcement authorities of many countries over the years. But it is the first time for us to cooperate on an active case with overseas financial regulators. We think the joint probe will help us bring justice to those responsible for last year’s stock price manipulation,” a prosecution official said.

Prosecutors suspect that employees at the German bank’s overseas bureaus gave orders to the Seoul unit to place massive sell orders in the closing minutes of trading on Nov. 11, the expiration date of stock index options.

The benchmark index closed 2.7 percent, or 53 points lower on that day.

As a result, the lender allegedly earned 44.8 billion won in profit.

Investigators have summoned 10 Deutsche Bank officials in New York and Hong Kong for questioning over their alleged role in derivative trading by its Korean subsidiary.

But Deutsche Bank has been refusing to let their employees be questioned by Korean prosecutors.

The prosecution official said if Deutsche officials continue to refuse to appear before investigators, Hong Kong’s SFC will summon and question them on behalf of Korean investigators.

“In that case, Hong Kong regulators agreed to share investigation documents with us. If the German bank is indicted for last year’s stock market price manipulation, the Hong Kong regulator will reprimand Deutsche’s operation there,” he said.

Following prosecutors’ latest move, Deutsche Bank released a statement, claiming that it continues to cooperate with Korean investigators. ``Several staffs have already been interviewed and written responses are provided to prosecutors’ questions,’’ it said.

In February, Korea’s stock market operator fined the local brokerage unit of Deutsche Bank a record 1 billion won ($910,000) for violating trading rules.

Since April, Deutsche Securities Korea has been prohibited from trading derivatives under its own accounts for six months as punishment.