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Regulatory Sanctions

Deutsche Börse Takes Insider Trading 'Bullet' for its CEO

September 18, 2017

On Thursday, September 14, Deutsche Börse agreed to pay the equivalent of $12.5 million to settle charges that: (i) it failed to announce in January 2016 that it had entered into merger discussions with the London Stock Exchange; and, (ii) its CEO Carsten Kengeter, who joined the exchange in 2015, allegedly used insider information when he bought $5 million worth of Deutsche Böerse shares in December 2015. Eventually, the agreed upon merger was blocked in 2017 by the European Commission.


The settlement was reached after Frankfurt prosecutors agreed to drop insider trading charges against CEO Kengeter and instead impose fines on the German exchange.


PROSECUTORS' INSIDER TRADING PROBE.   Prosecutors in Frankfurt, Germany, launched their probe into Mr. Kengeter's actions earlier this year, raiding his home and office in February as part of an investigation into his December 2015 purchases of Deutsche Böerse stock. Prosecutors concluded that the exchanges began merger talks during the summer of 2015, which indicated that Mr. Kengeter transacted “in the knowledge of previously unpublished contract negotiations, which the public prosecutor considers to be insider information.”


Mr. Kengeter, however, has steadfastly maintained his innocence, and both exchanges supported his position by saying that they began merger discussions in January 2016. For the record, the exchanges issued official statements in late February 2016 confirming they were in merger talks.


KENGETER’S CHECKERED PAST AND REPUTATION.    Before joining Deutsche Böerse, Kengeter was an executive with UBS, heading its investment bank from 2010 to 2013. After leaving UBS, he became a visiting professor of finance at the London School of Economics’ department of finance. While at UBS, Kengeter’s tenure was tainted by the following scandals:


  • One of the traders in the London office was accused of unauthorized trading that led to a $2.3 billion loss for the bank. That trader was found guilty of fraud in 2012 and sentenced to 7 years in prison. The ensuing scandal led to the resignation of Oswald Grübel as UBS’s chief executive.


  • UBS became embroiled in the Libor manipulation scandal. UBS eventually agreed to pay $1.5 billion to settle U.S. and U.K. charges over its role in rigging of the benchmark interest rates. Tom Hayes, the former UBS and Citigroup trader who was convicted of manipulation charges in 2015, had told British authorities in interviews after his arrest that Mr. Kengeter had been present at a meeting where manipulation of the rate was discussed. 


  • Kengeter was never accused of wrongdoing in relation to Libor. However, it is said that the U.K.'s Serious Fraud office dropped Kengeter from its list of suspects only after it was announced that he was slated to become the CEO of the proposed Deutsche Boerse/LSE deal.