Deutsche Bank Loses $934,000 in Arbitration


On February 8, 2013, a Financial Industry Regulatory Authority (FINRA) arbitration panel ordered Deutsche Bank and its former registered representative, Karl Hahn, to pay $934,000 to a couple who had sought to recover $2,193,931 for losses associated with the improper sale of premium-financed life insurance.  The award included $100,000 in attorney’s fees.  Hahn worked in Deutsche Bank’s private wealth management division.

The case was reported by Reuters as one involving outside business activities of Kahn, known in the industry as “selling away” (“U.S. arbitrators order Deutsche Bank and ex-adviser to pay $934,000,” by Suzanne Barlyn, Reuters).  Selling away is a practice often used by rogue brokers to create the false appearance that a product is being sold with the brokerage firm’s knowledge and approval, and to avoid detection by the firm’s compliance department.

Hahn was apparently a “big producer” – meaning he generated huge amounts of revenue for himself and his brokerage firm (not necessarily his clients).  Deutsche Bank paid Hahn $2.55 million just to come to work there, and is now suing Hahn to recover part of that signing bonus.  Hahn has other legal problems, including facing wire fraud charges filed by New Hampshire prosecutors related to a $1.9 million real estate fraud.

The type of life insurance sold to the couple is risky in that the premiums are paid with borrowed money subject to variable interest rates.  Brokers are legally obligated to disclose all material (important) facts in connection with an investment product or strategy they recommend.  One important fact that Hahn reportedly failed to disclose to his clients was that his father stood to receive a significant commission on the sale of the policy.  That fact is important because it reveals a conflict of interest – a potential motive for selling the policy other than the client’s best interest.

Page Perry is an Atlanta-based law firm with over 150 years of collective experience maintaining integrity in the investment markets and protecting investor rights.