So when I saw the Parmalat fraud accusations with a headline saying that three banks were being investigated for a possible role in the case, it seemed a natural way to learn how the SEC does what it does.

The Wall Street Journal is reporting [sub req'd] today that the three banks being investigated by the SEC in coordination with Italian investigators are Citigroup, Bank of America, and -- tah dah -- our friend, Deutsche Bank, but most particularly the first two.

As you probably know, Parmalat has been declared insolvent by an Italian court and its CEO was thrown in jail, but just before that happened at the end of December, the Journal reports, the banks were raising money for Parmalat, and Citigroup analysts rated their stock a buy as recently as November (describing it as "an attractive entry point for what remains an attractive restructuring story." ) Parmalat raised billions in bonds and bank debt, the Wall Street Journal report continues, and now both the SEC and Italian investigators want to know if the banks assisted in the alleged fraud or were negligent in looking at the company's books.

The article says that the banks earned fees estimated in the tens of millions of dollars and maybe much more through arranging such things as a structured-finance transaction (Citigroup) and a road show so Parmalat execs could meet US investors (arranged by Bank of America):

"It's obvious in any case involving a big fraud that we will examine all the participants to look for violations," said Lawrence West, associate director of enforcement with the Securities and Exchange Commission, who is coordinating with Italian authorities in the probe. He declined to comment on specific banks.

No bank has been accused of wrongdoing in connection with its Parmalat business. A person close to the investigation said the SEC is looking primarily at Bank of America and Citigroup. So far, investigators have found no indication of impropriety, this person said.

What was Deutsche Bank's role in all this? In September, according to the report, DB teamed with Parmalat for a bond issue. DB sold bonds to institutional investors in a private placement and bought some itself, according to the article more than 5%, but most of those shares DB borrowed on behalf of third parties, and later, either in mid-December or at least by January 2, 2004, it reduced its holdings in the collapsing company to below 2%.

NY's Attorney General Elliot Spitzer is reported to be investigating DB and Bank of America also, DB in connection with after hours trading, in connection with Spitzer's investigation of mutual funds:

New York Attorney General Eliot Spitzer is investigating whether Deutsche Bank's U.S. arm helped investors make illegal after-market trades in mutual funds, the source said Tuesday. The probe could lead to either criminal or civil charges, but no immediate legal moves by Spitzer's office are expected, the source said. New York state has issued a subpoena asking for documentation about Deutsche Bank's trading practices, the source said. . . ..

Deutsche Bank, which has an asset management and brokerage unit, is suspected of having helped investors trade mutual funds after the market closed, the source said. It is also being looked at for helping investors profit from rapid trades in and out of the funds, a practice known as market timing.

The Frankfurt-based bank is one of the largest financial services firms in the world. . . . . Thus far charges brought by Spitzer's team have focused mainly on trading that was done after the market closed, which is illegal if the shares are sold at the pre-market closing price.

Of course, Spitzer is investigating mutual funds, period, so DB is certainly not alone in being investigated by Spitzer and an investigation is not an accusation and it certainly isn't a finding of guilt. But here is what Spitzer told Congress recently, early in November:

New York Attorney General Eliot Spitzer told lawmakers they should consider doing something to revamp firms' internal compliance departments. "They have utterly betrayed the American public," he said. . . .Spitzer contended that the problems in the mutual fund industry are so pervasive that it is more than a matter of excising a few "bad apples" from the industry. "It's beginning to appear that the entire crate is rotten," he said. "The problems are structural, they are systemic."

Deutsche Bank had a good year financially, according to this report:

Deutsche Bank chairman Josef Ackermann boasted that his group had made "good progress in strengthening its businesses and increasing its operational capacity. This progress was reflected in third-quarter results." The bank's net profit outpaced analysts's expectations, rising to 576 million (674 million dollars) in the period from July to September from a net loss of 299 million euros in the corresponding period a year earlier.

So now what happens? Parmalat is reportedly [Update 2008: the link no longer resolves, but it was at http://www.forbes.com/ home_asia/newswire/2004/01/04/rtr1197360.html] asking some Italian banks for more money, silly. What did you think? Meanwhile, 8 people, including the founder of Parmalat, have been arrested, though no one is yet charged, and there is a warrant out for "for the former head of Parmalat's Venezuela operations who was also head of the group's Cayman Islands unit, Bonlat, at the centre of the scandal." Ah, the beautiful Cayman Islands [Update 2008: the link no longer works, but it was at http://www.reuters.com/ newsArticle.jhtml;jsessionid=X0XIT5DM0MMUECRBAEZSFFA? type=governmentFilingsNews&storyID=4067811]:

Parmalat's group's crisis was triggered last month when Bank of America said that documents, purportedly showing that a Parmalat unit in the Cayman Islands held nearly four billion euros ($5 billion) in cash and securities with the bank, were in fact false.

I've been collecting DB stories for a couple of months. Here's one on a German criminal case reported on back on October 18 by the Financial Post, which said there was a court date set for January 21. DB execs are accused of "breach of shareholder trust":

The case, brought by the Dusseldorf prosecutor, alleges that the defendants were guilty of breach of trust when they approved a €15-million (US$17-million) "appreciation award" to Klaus Esser, former CEO of Mannesmann, for his role in brokering the company's aquisition by Vodafone in 2000.

It seems such payments aren't all that rare:

Payments of millions of dollars are familiar fare in Mr Ackermann's investment-banking industry, if less so in mainstream corporate Germany. Deutsche, Germany's biggest bank, paid $100m to Frank Newman in 1999 when his services were no longer required as boss of its newly-acquired American subsidiary, Bankers Trust. A year earlier, Deutsche also paid millions to Frank Quattrone, head of its corporate finance boutique in California, just to be rid of him—probably money well spent given the havoc Mr Quattrone later wreaked at CSFB, the investment-banking arm of Credit Suisse. So a few million euros spread among the top executives of Mannesmann may have seemed no big deal. But Binz & Partner, a Stuttgart law firm, thought otherwise. In February 2000 it alerted prosecutors in Dusseldorf, Mannesmann's home town. It believed that the payments represented an Anglo-Saxon "help-yourself" mentality that was invading Germany.

By Anglo-Saxon, the article means the US of A. The court in Germany has blocked the Financial Times and the Wall Street Journal from covering the upcoming trial [Update 2008: the url no longer resolves; it was at http://news.ft.com/servlet/ ContentServer?pagename=FT.com/StoryFT/FullStory&c= StoryFT&cid=1071251711308] It's a criminal offense there, breach of trust [Update 2008: the url was at http://www.faz.com/IN/INtemplates/eFAZ/ archive.asp?doc=%7B8EC1957F-EC3B-405B-A9CC-97857CD9E96A%7D], but the article says first offenders usually get probation:

Breach of trust, or failure to act in the shareholders' interest, is a criminal offense in Germany, where management remuneration must be "in line with the tasks of the board member and the company's financial situation," a vaguely phrased regulation some experts say is a questionable basis for criminal charges. Sanctions for breach of trust include fines and prison sentences of up to 5 years, or, in very severe cases, 10 years.

Then there is the fine they agreed to pay in September, 2002:

Sept. 5 - Deutsche Bank - $58 Million

Former shareholders of Bankers Trust reached a settlement in New York federal court with Deutsche Bank. The plaintiffs alleged that Deutsche Bank's chairman denied his firm was in discussion to buy Bankers Trust in order to drive the stock price down before officially announcing the acquisition.

This was followed by the $1.65 million fine that December for "allegedly violating e-mail record-keeping requirements," according to the SEC, the New York Stock Exchange, and the NASD. Naturally, "in accepting the penalties, the broker-dealers neither admit nor deny the allegations." Did you notice what a long list of fine-payers there was on that page?

It seems the way to get money from a bank is to think big. You and I, of course, might not "qualify" for a large loan. See, this is the part I don't get yet. I guess I need to get back to studying up on finance. I thought if you lost all your money, filed for bankruptcy, your CEO was accused of fraud and there were arrest warrants out for your execs, banks might not consider you a good risk. Well, what do I know? Like I said, this is all over my head. Obviously, they didn't teach this wheeler-dealer high finance at the prim and proper girls' school I attended and there is a big difference between words on a page and how things play out in real life anyhow.