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Deutsche Bank MBS traders mispricing leads to $30 million loss.
| Stephen Cohen
Posted on 11/27/2002 11:46:56 AM PST by greencow
Deutsche Puts Two Mortgage-backed Trades on Leave
New York, Nov. 26 (Bloomberg)-- Deutsche Bank AG placed two traders on administrative leave as it investigates mispricing of some of the firm's secondary trading positions of commercial mortgage-backed securities.
Deutsche Bank placed Jake Markman and Paul Mashikian on administrative leave while the firm conducts the investigation, according to spokesmen Ted Meyer.
The mispricing may result in more than $30 millions in losses, according to the report in Bond Week, which cited an individual with knowledge of the situation. The publication earlier reported that the two traders were placed on leave.
Meyer said that the bank doesn't "comment on market speculation as to whether there were losses." He also said, "Any impact on our book would not have a material impact on our earnings." Meyer said no clients lost money as a result of the trading.
Markman and Mashikian couldn't be reached for comment.
TOPICS: Business/Economy; Front Page News
KEYWORDS: cmbs; deustchebank; mispricing
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It should be noted that both of these characters report directly to Justin Kennedy, the son of Supreme Court Justice Anthony Kennedy. How is it possible on a trading desk as small as Deutsche Bank's that Justin Kennedy didn't know in advance that there was a problem? They sit next to each other on the trading desk and talk continuosuly, so it is unlikely that the manager would be completely taken by surprise (unless, of course, he wasn't doing his job by failing to supervise). Mashikian is a trader with a reputation for being honest and Markman is a trading assistant, not someone who could misprice the books by over $30 million. A thorough investigation should be performed and the people responsible (including the supervisor) should be held accountable.
For a point of reference, Justin Kennedy was hired by Kevin Ingram, the Deutsche Bank mortgage group head that is serving time in Federal prison for allegedly laundering money for Pakistani terrorists during 2001 (but before September 11th). Ingram brought Jesse Jackson into Deutsche Bank when Ingram was fired - allegedly, Ingram received a $10 million settlement.
posted on 11/27/2002 11:46:56 AM PST
I once had a Deutsche Bank trader butt in front of me at the Philadelphia train station. I know this because when I pointed out politely there was a line, he said that he was a trader for Deutsche Bank, that he made $700,000 a year, that he had *two* cellphones, etc. This seemed to be his argument for why he should not go to the end of the line.
Needless to say a tortured him verbally. I kinda hope it's one of these guys that got fired.
My reply to this wide butt would be to shove BOTH cell phones into his gluteus maximus. Can't imagine the sight when both cells started to ring simulaneously!
posted on 11/27/2002 12:41:22 PM PST
When I worked for an IT firm in NYC I was placed at the Deutsche Bank trading floor (it was just a row of computers) at their offices on 6th Ave. I did zippo work as they were trying to complete a merger between "Deutsche Bank" and "West Deutschelands Bank" or something like that.
If this was the same area that these two people worked in I can't see how you could keep a secret. Place was wide open, you could hear everything, and no more than 100 people could work there at one time.
posted on 11/27/2002 12:55:50 PM PST
I agree that traders can be unbearable.
There is something wrong with this story. Either it was a failure in hedging that resulted in $30 million in losses or it was intentional inflating of the marks. But if it was a hedging mistake, why did Deutsche Bank squeal on these folks to BondWeek and then have an anonymous internal source say that the mispricing is over $30 million? Doesn't make sense. Apparently, it was overmarking positions for which there were losses.
As the original poster said, how could the person in charge of that area NOT know that the books were inflated? Clearly, the person in charge (apparently Justin Kennedy) should have known about this (or he was not providing any oversight which is just as bad).
posted on 11/27/2002 12:55:52 PM PST
To: greencow; mhking
"Hold muh margin calls and WATCH THIS!"
posted on 11/27/2002 12:56:49 PM PST
Bingo. I think these guys sat next to each other. And there are only about 6 in the group on the trading floor. That would be a BIG secret to keep quiet. Plus, you have risk management reviewing your P&L statements every day.
Can you spell "FALL GUYS"?
posted on 11/27/2002 12:58:31 PM PST
"Any impact on our book would not have a material impact on our earnings."
Ah my favorite spin statement. Yes it only reduces your earnings by $30M but that $30M was the one that allowed you to meet (or beat by a penny) earnings per share. Its like saying to the officer that you've been braking for 300 feet, what's another 10'? Nevermind that I'm out in the intersecion.
posted on 11/27/2002 12:58:47 PM PST
Google didn't turn up too much on the two:
Paul Mashikian graduated from MIT
in '95 and is at Deutsche Bank with another MIT alum Paul Mangione ('93) and played soccer.
Jake Markman went to Amherst
and I think graduated in '99.
posted on 11/27/2002 1:10:30 PM PST
How do you know Kennedy didn't discover the problem and air it?
posted on 11/27/2002 1:14:34 PM PST
I have worked on several trading desks and have been present at least three times when hanky panky was going on. It was always right under somebody's nose. You mumble a trade into the phone and put the documentation in your desk. You bribe a margin clerk to misprice your position. Happens all the time but only makes the headlines when it's huge.
posted on 11/27/2002 1:19:42 PM PST
On The QT #13
Everything You Always Suspected--
Plus Reasons To Be Cheerful, Part II
Carola Von Hoffmannstahl-Solomonoff
Publisher and Editor
to On The QT #13
. On the scene. 9/11/01 left many examining the state of the nation. Prior to the war, polls indicated the USA was becoming a "low trust society". Meaning many felt uneasy about their fellow citizens. On the streets, in business dealings and in the halls of government, people worried they'd receive what's commonly called a
Meet Kevin Ingram, ex Goldman Sachs bond trader, ex Deutches Bank mortgage maestro, ex dot commer, ex restauranteur, ex real estate developer and after being caught this June in an FBI sting, ex money launderer. Of close to three million dollars which was to be used to buy weapons for terrorists. Weapons sought by Kevin Ingram's associates included Stinger missiles, silencer equipped machine guns, grenade launchers and a little killer called a MR20, a nuclear missile trigger. The kind used in building a suitcase sized nuclear device. Heroin was to be part of the deal. The foreign country seeking the weapons was thought to be Pakistan; a possible recipient of the weapons Ossama Bin Laden, aka
Called so by his followers because his family made their fortune in the building trade. And speaking of construction, one of Kevin Ingram's residences was a condo in Jersey City, New Jersey. Where Ingram had a business partner, Diajaa Mohsin. Together with another partner they made up B.I.A. Construction, with an address on York Street. Egyptian born Mohsin introduced Kevin Ingram to Mohhammed Raja Malek, a Pakistani native who'd been a Jersey City resident for over thirty years and who also served on the Jersey City zoning board. Malek, known as "Mike", owned a string of liquor stores and smoke shops. Diajaa Mohsin also had contacts in Florida. Including a convicted money launderer and dubious diamond dealer named Randy Glass(!). Via Glass the Feds glommed on to Mohsin's and Malik's unseemly interest in illegal arms. Glass was squeezed, then wired for sound. He told Mohsin he had access to military goodies. Beginning in 1998, Glass and various undercover agents met with Mohsin, Malek and Kevin Ingram in Boca Raton, Florida and at Robert De Niro's Tribeca Grill in lower Manhattan and had numerous discussions about washing big dirty bucks and buying
BIG DEADLY BANGS.
Early this Summer the trio was busted. Along with several others involved with the deal. One was an associate of Kevin Ingram's-- Walter Kapij, an airplane broker from Wethersfield, Connecticut, In late August Kevin Ingram pled guilty to money laundering. He agreed to pay the US government $185,000 and also agreed to paint Mohsin and Malik into a corner. As sentencing approaches, Ingram's attorney says Ingram had no idea the dirty money was meant for weapons.
Kevin Ingram is a MIT and Stamford grad. A real estate finance honcho who ran the mortgage trading service at Goldman Sachs for 6 years and later headed the mortgage backed securities department at Deutsche Bank. In 1998 he was Deutsche Bank's man in London, heading their global asset securitization department. London has a rep as a banking haven for terrorists: including the Bin Laden financial network. Ingram also had offices in the World Trade Center, which radical Islamic terrorists, living in Jersey City, bombed in 1993. Would Kevin Ingram launder money with business partner Diajaa Mohsin and Muhhammed Raja Malek, both of Jersey City, without knowing what he was washing? For close to three years? Also consider that when Kevin Ingram was nabbed in Fort Lauderdale, Florida (where the final money exchange took place) he lied about his assets at his initial bail hearing. His attorney said Ingram "panicked" and hence didn't mention a 1.5 million dollar Swiss bank account. Or his share in a restaurant in lower Manhattan. Plus quite a few other major assets. And when Kevin Ingrim was busted in Florida, he was about to head for Amsterdam in a Lear jet provided by airplane broker Walter Kapij. With 2.2 million dirty dollars in hand. Which would have been
In 1996, Kevin Ingram had been hired to run Deutsche Bank's mortgage backed securities business. Two years later he was pressured to resign. Ingram's department ran huge trading losses. Others say office politics were behind his being axed. Ingram did not go gently into pink slip night. He called in Jesse Jackson to negotiate his departure. Ingram, who in 1996 was named one of the top 25 African American "movers and shakers on Wall Street" by Black Enterprise magazine, said racism was at work. He demanded 20 million dollars severance. At the time Deutsche Bank was in the process of acquiring Bankers Trust. Did the threat of a PC dust up, during a heavily regulated acquisition, cause Deutsche to quake in their liederhosen? Whatever the reason, Deutsche settled with Ingram for an undisclosed sum. Commonly believed to have been at least 10 million. Ingram donated generously to Jackson's Rainbow Push then moved on to
In 1999 he joined the real estate drive into Harlem. As chief executive of I.W, Development L.L.C., based in Midtown Manhattan, Ingram got in on reopening historic Harlem Be Bop shrine Minton's Playhouse and renovating Well's Famous Home of Chicken and Waffles. Minton's had floundered in an earlier renovation attempt, one spearheaded by celebs. Including Robert De Niro. The new financing for both Minton's and Wells was to be a package deal, with the HUD related Upper Manhattan Empowerment Zone arranging loans of almost a million dollars and Ingram raising whatever else was needed. Ingram never kicked in his part of the package; but he did receive $200,000 from the Upper Manhattan Empowerment Zone. Who hit the litigation trail in an attempt to recover. Minton's and Wells
In mid 2000, when Internet bond trading hype was running full throttle, Kevin Ingram launched TruMarkets, a site designed to trade securities electronically-- including derivatives and mortgage bonds. The buzz was good and investment support was impressive. Much of it from politicians and Wall Street heavies. Nonetheless TruMarkets went bankrupt in March, 2001. A few months later an undercover agent asked Ingram to launder the last and biggest weapons payment-- 2.2 million dollars. Ingram dithered at the agent's blunt description of the transaction, but finally said, "I'm a professional and I have a reputation, but I don't mind making money". He never mentioned
If citizen was an impossible loyalty, how about "I'm a human being: I do mind harming people"?
ME & MY PROFIT.
Certain words in Kevin Ingram's story echo widely as the importance of laundered money emerges post 9/11/01. Arms. Foreign assets. Drugs. Diamonds. Real Estate. Mortgage Banks and brokers. Construction. HUD money. Money money. Equally resonant is Kevin Ingram's anomic description of himself. The same lonely light shines in the eyes of many. Dreams of "My Own Private Money Bin" absorb far more people than Kevin Ingram and not just those in economic and political elites. When money is God, people treat it as an unexamined first principle. No one asks from whence it comes. Greater attention to what's called "Black Money" may prove beneficial. Illuminating some dark corners. Not all of themOver There.
rhymes with BS. In New Jersey, Republican Bret Schundler is running for governor. Claiming he can improve security and protect New Jersey from terrorism. Bret Schundler was mayor of Jersey City during most of the 90's. From the 93 WTC bombing through the Ingram/Malek/Mohsen salad days. Jersey City (pop roughly 350,000) is still a pretty small town politically. And economically. You gotta ask-- just how closely did Bret monitor terrorist circles or sources of money in his very own city?
Will return next issue. Along with a discussion of the Internet's stellar performance during the new millennium's first major war. Click here,
for a list of sources used in this issue of On The QT
"we black the boots of success, without inquiring whose soul dangles from his watchchain."
ON THE QT is online at http://www.users.cloud9.net/~drs/ontheqt
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posted on 11/27/2002 1:23:50 PM PST
Perhaps. But what about the head of the group who is responsible? I mean, $30 million inappropriate markup is not something that happens overnight. Some one was reviewing the books and had to agree with the numbers over a period of time.
posted on 11/27/2002 1:25:43 PM PST
To: rdb3; mhking
Jesse Jackson terrorist shakedown ping...
posted on 11/27/2002 1:31:48 PM PST
Comment #15 Removed by Moderator
Comment #16 Removed by Moderator
Management is screwed either way. If they knew, they commited fraud. If they didn't know, they must be fired for having failed in their oversight role.
To be sure, $30 million is a small amount relative to losses in Europe. What stunned me about the story was the public hanging of the two traders. Generally, when management finds a book to be market too high, they tell the traded to write-down the book to appropriate levels. Why leak it to BondWeek along with the magnitude of the losses? Something is not right.
posted on 11/27/2002 1:51:01 PM PST
Comment #19 Removed by Moderator
Comment #20 Removed by Moderator
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