Bankers Trust to Pay $10 Million in Derivatives Case : Investing: The firm’s securities arm settles charges that it lied to a customer about losses. It neither admits nor denies wrongdoing.

From Associated Press

The securities arm of Bankers Trust New York Corp. agreed Thursday to pay a $10-million civil penalty to settle charges that it lied to a customer about losses from securities known as derivatives. However, the firm neither admitted nor denied wrongdoing.

The case, brought jointly by the Securities and Exchange Commission and the Commodity Futures Trading Commission, represents a clear statement that fraud will not be tolerated in the $12.1-trillion derivatives market, regulators said.

“This case stands on the fact that you cannot lie to the customer,” said Mary Schapiro, CFTC chairwoman. SEC officials issued similar statements.


BT Securities Corp., the securities affiliate of Bankers Trust, is one of the biggest merchants of derivatives, the catchall term for exotic securities that are based on, or “derived from,” some other type of investment, such as a group of stocks, bonds or commodities.

Some species of derivatives have plunged in value this year as interest rates have risen, creating horrendous losses for many of the investors that bought them and raising concern that the buyers did not understand what they were purchasing.

Bankers Trust Chairman Charles Sanford Jr. said in a statement that the firm does not admit or deny wrongdoing in the settlement. The bank said the enforcement case focused “primarily on the actions and statements of one employee, who is no longer with BT Securities.” The employee was not named.

Sanford said BT Securities has new procedures in place to prevent similar problems.

The agencies accused BT Securities of violating anti-fraud provisions of securities and commodities laws. BT Securities agreed to pay $5 million to the SEC and $5 million to the CFTC.

The case focused narrowly on BT Securities’ relationship with Cincinnati-based Gibson Greetings Inc., which makes greeting cards. The company reported a $23-million loss earlier this spring because of derivatives it bought from BT Securities. Gibson had earlier settled a lawsuit with Bankers Trust. Among other things, BT Securities was accused of telling Gibson that its derivatives losses were millions less than they actually were.

The loss, which Gibson claimed threatened its survival, became a symbol of the risks in the derivatives market and was cited repeatedly during numerous congressional hearings on derivatives.