Money & Investing
Deutsche Bank Thief Stripped Wealthy Clients of $8.5 Million
By PAUL BECKETT
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- In the 11 years he worked at Deutsche Bank
AG's private bank, Eduardo Del Rio stood out to colleagues
chiefly for the sharp suits he wore on casual Fridays, the
cakes he brought to work, and the cars he restored in his
spare time.
Now he is known for something else altogether: the theft of
$8.5 million from about 90 of the bank's superwealthy clients
-- the bulk of it from an account connected to the Thyssen
family, one of Europe's most prominent industrial dynasties
-- from 1994 until he was caught in April last year. Last
month, Mr. Del Rio was sentenced to 46 months in prison and
ordered to pay $9.2 million in restitution after pleading guilty
in Manhattan federal court to one felony count of bank fraud.
How Mr. Del Rio, a 34-year-old "private bank
specialist" who maintained accounts in
Deutsche Bank's Manhattan offices,
managed to siphon off funds for six years
raises serious questions about the bank's
internal controls. His lawyer described the
crime, which hasn't been reported before, as
"astonishingly easy to carry out."
The theft, which represents only a tiny
fraction of the amount of money Deutsche
Bank manages, also represents a black eye
for Germany's biggest bank, just as it seeks
to boost its private banking operations, which are part of its
Private Client & Asset Management division.
Jerome Walker, a former senior attorney at the Office of the
Comptroller of the Currency, the federal bank regulator, and
now a partner in the New York offices of law firm Salans
Hertzfeld & Heilbronn, says: "The fact that it went on for
such a long period of time with the presence of internal and
external audits and regulatory examinations suggests that,
while there was probably not something fundamentally
wrong, this must have been a situation where he knew how
to manipulate the system."
Through his lawyer, Mr. Del Rio, of Ridgewood, N.Y., declined
to be interviewed. But at a court appearance in October, he
conceded, "I misappropriated approximately $8.5 million of
customer funds from Deutsche."
In a statement Tuesday Deutsche Bank said, "This situation
was first identified by the bank, which notified regulators and
cooperated in the prosecution of the ex-employee." It added,
"We fortified our policies and procedures, and extensive
controls are in place to ensure that assets of the bank and
its clients are secure from any future attempt at criminal
diversion."
After two years of college, Mr. Del Rio, born in Brooklyn, N.Y.,
landed a job at Deutsche Bank in 1989. For the first few
years on the job he appears to have been a diligent
employee in the private bank's small Latin American client
group, where he maintained 300 accounts and processed
transactions at the request of clients.
His pay was not lofty by banking standards -- he received a
salary of $70,000 and a bonus of $27,000 in 1999, people
familiar with the matter say -- but the job gave him an
insight into another world. Mr. Del Rio "got to see how the
rich and famous lived," says a Feb. 20 letter, written by his
lawyer, Brian Maas, to the sentencing judge. "Immature and
naive, Eddie was easily dazzled by his clients' lifestyles."
(Deutsche Bank and Mr. Del Rio's lawyer decline to comment
on his compensation.)
Mr. Del Rio, a fluent Spanish speaker who had no prior
criminal history, saw his opportunity sometime in the early
1990s after he mistakenly told a client an account held less
than it did, say two people familiar with the case. Mr. Del Rio
later realized his mistake, but the client didn't, and that
apparently prompted Mr. Del Rio to hatch his scheme, these
people say.
It is a typical scenario for crimes committed in private banks,
says Steven Garfinkel, a supervisory special agent at the
Federal Bureau of Investigation: "There's a longtime
employee, trusted by clients, and the clients have so much
money that they are oblivious to what is going on."
Randall Avery, an FBI special agent, said in a sworn
statement last year that Deutsche Bank found $7 million
missing from one client account and a total of about $1
million missing from about 89 others.
The account that suffered the bulk of the theft, people
familiar with the matter say, was the "Thyssen Global"
account, which is connected to members of the Thyssen
family. The Thyssens are a very prominent German industrial
dynasty that traces its wealth to what was imperial
Germany's largest steel company in the late 1800s and is
now part of German steel and engineering giant Thyssen
Krupp AG. Several descendants of company founder August
Thyssen now live in South America; that explains why the
Thyssen Global account was handled by the Latin American
team where Mr. Del Rio worked, people familiar with the
matter say. Representatives of the Thyssen family didn't
respond to repeated telephone calls or to a list of e-mailed
questions. Deutsche Bank said, "It is the bank's longstanding
policy not to discuss, or comment on, client matters."
Mr. Del Rio's crime went undetected for so long largely
because of a lack of supervision, according to some. Mr.
Maas, Mr. Del Rio's lawyer, said in his letter that "higher-ups
at the bank paid scant attention to Eddie's little niche."
Deutsche Bank declined to comment on his supervision.
Mr. Del Rio's theft might have been detected by Deutsche
Bank's own checks and balances: The bank requires that all
private-bank account transfers be cross-checked by a
colleague or superior. The checker is meant to examine the
transaction, review the client instructions and add another
signature, several former bank employees say.
Yet those controls fell short in Mr. Del Rio's case. One way
he may have short-circuited the process was by sometimes
asking members of other groups in the private bank to
approve transactions, according to one of Mr. Del Rio's former
colleagues, who now works elsewhere in financial services.
That practice was permitted, but often the client instructions
on Mr. Del Rio's transfers were written in Spanish, which
members of the other teams couldn't understand, this person
says.
"Notwithstanding Deutsche Bank's 'two signature' policy for
such transactions, authorized bank employees signed off on
all his debit requests without asking any questions," the
letter from Mr. Del Rio's lawyer says.
Over six years, Mr. Del Rio performed thousands of improper
transactions, with client-account withdrawals ranging from
$100 to around $1 million, people familiar with the matter
say. In many cases, he charged clients fictitious fees, which
he then transferred to accounts he held at Chase Manhattan
Bank , Bank of New York Co. and Prudential Securities, court
records say.
He also used checks issued by Deutsche Bank, supposedly on
behalf of clients, for his own personal use, people familiar
with the matter say. With the money, he purchased two
rental-apartment buildings in Queens, N.Y., for a total of $3
million; a condominium in Miami for $800,000; a house in
Ridgewood for $185,000; and a delicatessen for $110,000,
and he made a loan to his sister. He also indulged his
passion for cars, purchasing three Mercedes, a Lincoln
Navigator -- all maroon-colored -- three motorcycles and
three jet skis, people familiar with the matter say. Many of
the cars and the motorcycles carried license plates with
spelling variations on the phrase "Ready Eddie."
Mr. Del Rio was caught in April of last year during an audit of
private bank accounts following Deutsche Bank's 1999
purchase of Bankers Trust Corp., people familiar with the
matter say. Since his arrest, the Federal Reserve Bank of
New York has conducted a special audit and approved a
tightening of internal controls that Deutsche Bank was
implementing in the wake of the crime, these people say.
Deutsche Bank has since reimbursed all clients for their
losses. A Federal Reserve spokesman declined to comment.
In an unusual footnote, Deutsche Bank on March 7 sent a
letter to the sentencing judge noting that Mr. Del Rio helped
the bank track down his ill-gotten gains. His lawyer, Mr.
Maas, said in his letter that "compared with the young man
in his 20s who wanted to be a big shot, Eddie is now older
and wiser." According to federal sentencing guidelines, Mr.
Del Rio faced 46 to 57 months in prison. U.S. District Judge
Richard C. Casey last month sentenced him to the minimum
under those guidelines.
-- Colleen DeBaise contributed to this article.
Write to Paul Beckett at paul.beckett@wsj.com