The $8 Million Question: Why an Israeli Whistleblower Turned Down His Reward

In the United States, Eric Ben-Artzi spoke out against Deutsche Bank’s derivatives practices, but he’s not happy to let shareholders foot the bill.

Achikam (Eric) Ben-Artzi, who blew the whistle on Deutsche Bank, August 2016.
Moti Milrod

Achikam (Eric) Ben-Artzi, once a risk officer at Deutsche Bank, shocked Wall Street when he revealed how the giant bank had concealed potential losses of billons of dollars in the credit derivatives market. This week he astounded the financial world again when he refused to accept a reward amounting to millions of dollars from the U.S. Securities and Exchange Commission.

In 2011 he told the SEC that during the financial crisis, Deutsche Bank was concealing from its shareholders the potential credit-derivatives losses. For his part in uncovering the affair, the SEC wanted to give Ben-Artzi $8.5 million. He refused it.

“Although I need the money now more than ever, I will not join the looting of the very people I was hired to protect,” he told The Financial Times in a letter. He blamed the revolving-door phenomenon of top lawyers between Deutsche and the SEC; they moved from the bank to the regulatory agency and vice versa while a probe into the bank was underway.

The chumminess between the bank and the regulator explains why Deutsche was not punished even after the affair was uncovered. In 2015, Deutsche agreed to pay a $55 million fine without admitting it had broken the law. None of its top people were punished and the payment was borne by the bank’s shareholders, not its management. The reward offered to Ben-Artzi was 15% of the penalty.

“But Deutsche did not commit this wrongdoing. Deutsche was the victim. To be precise, the bank’s shareholders and its rank-and-file employees who are now losing their jobs in droves are the primary victims,” he wrote.

“Meanwhile, top executives retired with multimillion-dollar bonuses based on the misrepresentation of the bank’s balance sheet,” added Ben-Artzi, who believes that taking the money would be tantamount to punishing the shareholders twice over.

A mathematician by training and a nephew of Sara Netanyahu, the prime minister’s wife, Ben-Artzi worked as a risk officer at Deutsche until 2011 after completing his doctorate in mathematics at New York University and a stint at Goldman Sachs. When he came to Deutsche in 2010, he noticed that at the height of the financial crisis the bank gave regulators inflated estimates of the value of its derivatives positions, camouflaging potential losses of billions of dollars and avoiding a government bailout.

Ben-Artzi brought this up with his colleagues but they said he should forget it because an internal investigation was underway. A few months later he turned to one of the company’s top lawyers, and in November 2011 was fired. The official reason: His position was being moved to Berlin.

In 2011 Ben-Artzi told the SEC what he knew about how Deutsche Bank had inflated the value of its derivatives investments. He was one of three whistleblowers who approached the SEC about the affair.

As a result, his career on Wall Street was wiped out. In 2014 Ben-Artzi returned to Israel and began to rebuild his life. Today he works at the Herzliya startup BondIT, which develops data technology for managing bond portfolios.

A Deutsche Bank logo adorns a wall at the company's headquarters in Frankfurt, Germany, June 9, 2015.
Reuters / Ralph Orlowski

You don’t need to be religious

“I think I did my duty, and I can feel that I’m not a thief and that I earn my living honestly,” he told TheMarker.

Still, very few people would do what you did, with its high personal price, and then refuse $8 million, only to protest that they didn’t punish the executives.

“Eight million dollars is the headline. Ultimately other people are getting part of the reward, so the amount I’m giving up is less than that, closer to $3 million. It’s still a lot,” he notes, adding that the other people include his lawyer – his ex-wife – and experts who helped prepare the case against the bank.

“Some of the reactions said I was giving it up as a protest because they didn’t deal with the executives, and I think that’s a bit inaccurate. The real problem is that they robbed the shareholders and the public – taxpayers in Germany, the United States and elsewhere. The fine didn’t punish the top people, but they imposed another fine on the victims, the shareholders.

“It’s less a matter of protest and more a matter of how I don’t want to be a part of this. I don’t want to accept stolen money. They're robbing the shareholders and making me a partner to that.

“People asked me afterwards: ‘Are you religious?’ This sounds strange to me – only religious people don’t steal? But that’s the reaction all of us have, and it says something about what we’ve come to.

“I’ll give you an example. A few weeks ago I lost my wallet and within an hour I got a text message from a woman who found it and returned it to me and didn’t want to accept a reward. I don’t understand why people are amazed when this happens in finance.”

Maybe at some level we expect a certain system of rules and values in our everyday lives and agree to a totally different system for huge firms like Deutsche Bank.

“Right. In this case it’s also a corruption of the justice system. Not only did the lawyers betray the shareholders when they worked for Deutsche, they also betrayed democracy. Instead of pursuing justice they chased money.

“My impression is that this doesn’t exist in Israel, at least not systematically. You see highly placed and very strong people going to jail. The justice system is apparently driven by justice after all, at least as the judges and the prosecutors understand it, and not by money.”

Immunity for top people in the private sector is a hot topic in the United States, especially after the financial crisis. You had the opportunity to see how the system works firsthand.

“I feel like I’ve seen up close how it works and how it happens. In the United States there are systemic conflicts of interests that thanks to the Supreme Court are legal, and there is no real oversight when lawyers behave improperly, because they supervise themselves.”

Sketchy justice system

In The Financial Times you write about Deutsche’s top lawyers, the ones who were in charge of internal investigations, and the revolving door with the SEC. Why are the lawyers the problem here and not, for example, the top executives?

“As long as there is money in the financial system and at the big companies, dishonest people will go there. Opportunity makes a thief. What isn’t inevitable is that the police will take bribes from that thief. And that’s the problem. Not that there are people like Bernie Madoff, because there will always be people like him, but rather because there’s a justice system that basically doesn’t function.”

The reward you were offered is very unusual. Usually whistleblowers aren’t offered rewards in the millions of dollars. Do you think this was a message like “let’s not bicker; here’s your share of the pie?”

“Exactly. It’s almost hush money. Had I taken the money, I wouldn’t have been able to criticize the SEC. As for whistleblowers, Dodd-Frank [the finance reform] is supposed to protect them, but actually it falls into the hands of the lawyers – who tear the whistleblowers to shreds.

“My story ended in a fine because I fought with all my might and turned it into a crusade. I had objections about the pricing of Deutsche Bank’s derivatives portfolio, so I had to help the SEC build the case. I found outside experts who of course worked for free because I had no money. They worked either based on a percentage of the case or out of the goodness of their hearts.

“I spent months working with The Financial Times. I did that when I found out that apparently the SEC was about to close the case. I take my hat off to The Financial Times and the reporters who invested months in studying the material and took a very big risk in order to bring the truth to light.”

For the past two years you’ve been working at BondIT. What do you do?

“We have a product that modernizes one of the most ossified areas in the world of investment management, investments in bonds. It’s also one of the most important areas – most of the money in the world is in bonds and they’re a key element in all long-term savings – it’s our pensions.

“Our solutions help the investment manager build personal portfolios based on a person’s needs and constraints, and out of hundreds of thousands of bonds in the international markets. This is a very difficult problem from a technological and mathematical perspective.

“Our innovation is that we bring to this world, the heart of the financial world, advanced technology like machine learning and big data, letting investment managers make smarter decisions and manage our investments in the best possible way. At first we focused only on Israel and now we also cover bonds in Asia, Europe and the United States. We’re the only ones applying this technology to private investments.”

You’ve worked in finance and now you’re working in a startup. How are the cultures different?

“The atmosphere is much nicer. It’s challenging but fun to work on something I believe can revolutionize the world of investments. You’re expected to initiate things, and you develop confidence that you’re not just a cog in a system that’s useless when the machine breaks down.”