Shortly after the Department of Justice (DOJ) was scolded by the Court for its attempt to intervene in a lawsuit brought by Matthew Connolly against his former employer Deutsche Bank, the bank had to respond to the allegations made by the former trader.
On April 3, 2023, Deutsche Bank filed a motion to dismiss Connolly’s complaint in the New York Southern District Court.
The trader alleges that he was the victim of a deliberate effort by his former employer, Deutsche Bank, to steer a Department of Justice (DOJ) investigation towards him and other lower-level employees and away from the senior executive decision makers. Connolly claims that Deutsche Bank did this to appear to cooperate with the DOJ while driving the investigation to a favorable result for the bank and its high ranking officers.
Mathew Connolly brings this action for malicious prosecution based on “Deutsche Bank’s calculated conduct, misstatements, and omissions to the DOJ, and the perjured testimony by a Deutsche Bank employee to the jury in the District Court at trial”.
Connolly says that, at all times, Deutsche Bank knew that its C-Suite and senior executives had directed Deutsche Bank’s LIBOR submission practices and policies. Mid-level traders, including Connolly, trusted and justifiably relied on that direction and those practices, understanding them to be vetted, legal and in compliance with the law.
But when the government began questioning LIBOR’s accuracy, Deutsche Bank allegedly gave the DOJ an incomplete and false map to protect itself and its elite upper-echelon from scrutiny, encouraging and inducing the DOJ to pursue, indict, scapegoat, and prosecute Connolly who: (a) had not been employed by Deutsche Bank since 2008, eight years before his indictment; (b) was much lower in the organizational structure; (c) had virtually nothing to do with LIBOR submissions; and (d) was not a member of the privileged club of Deutsche Bank executives worthy of protection.
The trader says that the investigation, indictment, and ensuing prosecution followed a well-trod and corrupt path. The institution and its senior management hired a prominent law firm, Paul, Weiss, Rifkind, Wharton & Garrison LLP, and paid the firm millions of dollars to conduct an “independent” investigation.
Connolly claims that the US government tacitly or openly approves of this (or even requests it), effectively outsourcing its investigation to the law firm, which becomes a quasi-deputized arm of the government (knowing that employers can secure the cooperation from current and former employees in ways the government cannot, for example by threatening to clawback previously paid compensation and because employees may not exercise Fifth Amendment rights in a private investigation). In short, the institution knowingly did the government’s bidding, the government relied on the information the employer obtained, and the quid pro quo is that the government gave the institution credit for cooperating by reducing the penalties imposed on the institution.
According to Connolly’s amended complaint, the results of that investigation were preordained. The law firm, doing its job to protect the institution and its senior management, glossed over, obscured, and erased from the record senior management’s conduct and instead targeted a low-level scapegoat, here Connolly.
Connolly, who was barely involved with LIBOR and who did not gain personally from any rate submission, despite, on information and belief, Deutsche Bank falsely leading DOJ to believe that he did, is handed to the government as a sacrifice. In exchange, the government fined the institution at a discount and the charade concluded, Connolly’s complaint alleges.
Deutsche Bank’s efforts were successful. Not a single person from its senior management was charged with any crime. Because of Deutsche Bank’s cooperation with the government (which included handing over Connolly as a scapegoat), the government gave Deutsche Bank a $750 million credit on an ultimate fine of $2.5 billion, a large amount without question but one that was very manageable for an institution like Deutsche Bank and which was paid by innocent shareholders, not senior management.
Connolly had his life ruined. In 2016, eight years after leaving Deutsche Bank, he was indicted in the Southern District of New York based on information provided and information concealed by Deutsche Bank and Paul Weiss. He fought through a trial where he was convicted of wire fraud and conspiracy to commit wire and bank fraud. He fought through an appeal and was ultimately exonerated in 2022, when the Second Circuit overturned his conviction, finding that the way banks reported LIBOR rates, the alleged misconduct, was not illegal. He was ultimately adjudged not “not guilty” but innocent.
Connolly has been unable to work in his profession since 2016. He has endured a criminal trial, the loss of free movement, the surrender of his passport, and the destruction of his personal and professional reputation. It has affected his health, his children, and his wife.
The ex-trader says that Deutsche Bank’s decision to scapegoat him to shield its senior management was shameful, wrong, and morally unconscionable.
Now, Connolly seeks redress for Deutsche Bank’s actions. He seeks a sum large enough, in excess of $150 million, to compensate him for his economic losses and the torment he and his family have suffered, including damage to his reputation and “to deter and punish Deutsche Bank for its role in directing the destruction of his life”.
In its motion to dismiss, Deutsche Bank argues that if anyone is to blame for Mr. Connolly’s situation, it is not Deutsche Bank.
The bank says that plaintiff’s attempt to allege that he was “maliciously prosecuted” by his former employer—which requires that he allege that Deutsche Bank initiated the prosecution, a lack of probable cause for the prosecution, that Deutsche Bank was motivated by actual malice, and that the prosecution terminated in Plaintiff’s favor—is deficient as a matter of law and should be dismissed with prejudice.
First, Deutsche Bank says, the Complaint must allege that Deutsche Bank “initiated” the prosecution against Plaintiff. To allege that a private entity “initiated” the prosecution, the Complaint must allege that Deutsche Bank overtook the prosecutor’s volition in bringing the prosecution. The Complaint does not do so, the bank says, adding that all that the Complaint alleges is that Deutsche Bank cooperated with investigators and received more lenient treatment for its cooperation.
Second, to bring a claim for malicious prosecution, Plaintiff must allege a lack of probable cause to bring the prosecution. But the allegations are to the contrary: Plaintiff admits that he engaged in conduct considered by both the government and the district court at the time to be criminal. That an appellate decision later determined that the underlying conduct was actually lawful does not undermine the reasonableness of concluding Plaintiff had committed a crime at the time of the purported malicious prosecution.
Third, Deutsche Bank says, the Complaint does not allege that Deutsche Bank acted with the malice required for a malicious prosecution claim. The Complaint alleges that Deutsche Bank cooperated with the government’s investigation in the hopes that it would be treated more leniently. But a potential co-defendant’s mere cooperation with law enforcement and prosecutors is not the sort of intent to harm necessary to allege malice. If it were, every co-defendant considering cooperating with prosecutors in hopes of more lenient treatment would need to weigh the risk of civil liability to their co-defendant in deciding whether to come forward and tell the truth— something the courts have carefully sought to avoid for decades.
