April 1, 2013
A recent Opinion and Order by Judge Forrest (SDNY) in IBEW Local 90 Pension Fund v. Deutsche Bank AG gives hints of some of the challenges facing plaintiffs in cases alleging misrepresentations and a scheme to defraud investors.
- Greg Lippmann, Deutsche Bank’s top gobal RMBS trader, described Deutsche Bank’s RMBS products as “crap” and shorted it to the tune of billions of dollars. (6)
- Lippmann described the process of selling CDOs based on RMBS as a “ponzi scheme.” (7)
- Lippmann described some Deutsche Bank CDOs as “generally horrible.” (8)
Because this Opinion and Order is considering a motion to dismiss, it treats the allegations as true for the purposes of the motion. But the opinion does not consider the back story here (not that it should). And the back story undercuts the plaintiff’s case quite a bit, such that it illustrates the markedly different standards that would apply if this case were to be decided on a motion for summary judgment or if it went to trial.
So what is the back story? Well, Greg Lippmann is no faceless Wall Street operator. Rather, he is one the handful of Wall Street rebels who bet big against the conventional wisdom about subprime mortgages and was profiled by Michael Lewis in the Big Short.
So imagine how the defense will contextualize these alleged statements. Lippmann has been well-documented to have been a lone wolf within Deutsche Bank. In fact, Deutsche Bank was overall long on these products. Deutsche Bank was acting responsibly by hedging its exposure across the whole bank, even if some desks and units were at odds with each other.
Bottom line: this plaintiff will have a tough row to hoe as this case proceeds past the motion to dismiss phase.