An employee of BaFin sued Germany’s largest online bank ING Germany in court for being too late to indicate suspicious trading activities of a potential criminal client.
The rare public criticism of an individual bank by the German financial regulator was made on Tuesday during a trial in Frankfurt, where a 45-year-old former senior fund manager of Union Investment is charged. large-scale insider trading.
The defendant admitted last week that he made “preliminary” investment decisions that he made on behalf of his employer on 55 occasions between April and September last year, which made € 8.1 million in net profit.
According to the public prosecutor, he uses a private brokerage account with ING Germany to buy and sell derivative instruments for retail investors that he has traded for Union, including Infineon, Deutsche Post and MTU, and sometimes spends € 1 million per transaction.
The total trading volume over the six months leading up to his arrest amounts to € 45 million, generating significant fees for the online broker.
Frank Mühlhans, a BaFin insider trading expert, told judges on Tuesday that the defendant’s broker noticed the highly suspicious transactions relatively late and only after several issuers alerted the regulator about the dubious activity.
“Regarding this broker, I’m not surprised by this,” Mühlhans said. He points to his past experiences with suspicious activity reports from the bank. ‘They write a lot [of suspicious activity reports] but they are surprisingly sluggish with regard to the important matters. ”
ING Germany was not explicitly mentioned on Tuesday, but in court last week the public prosecutor identified the borrower as the defendant’s broker. With 9.5 million customers, ING Germany is the largest retail bank in Germany and one of the country’s largest retail brokers.
BaFin and Mühlhans declined to comment. ING Germany declined to comment on the matter. The bank told the Financial Times that stockbrokers should legally indicate suspicious client activities that could potentially trade with insider trading or market manipulation. “ING Germany complies with this obligation and operates appropriate transaction monitoring systems and reporting procedures,” he added.
The defendant said last week that frustration over his € 440,000 salary in 2019 led him to start insider trading. After receiving only half of the salary increase he had hoped for in April last year, he felt ‘insulted’ and decided to recover the rest himself.
He said he was initially only aiming to earn around € 500,000 with his co-investments: ‘Then things got out of hand. It has become an addiction. Every successful trade has created a sense of excitement and superiority. ”
Mühlhans told the court on Tuesday that he found it surprising that the experienced fund manager had apparently assumed that his large-scale insider trading could go unnoticed. He pointed out that the first suspicious transactions were marked within weeks by issuers of the certificates.
One of the first banks to inquire about the transactions was JPMorgan.
“They suspect early on that they would be provisional,” he said, adding that high-leverage betting on single stocks, which is always successful, quickly attracts the issuer’s attention. “It’s like in Las Vegas: If you always win, you cheat,” Mühlhans said. JPMorgan declined to comment.
The fund manager will be sentenced on Thursday.