By Chris Kentouris
March 15, 1999
Bankers Trust last week issued an internal memo to senior-level staffto explain the effects of a recordkeeping scam involving former securitiesservices employees who illegally diverted $19.1 million in unclaimedsecurities assets to boost their division's performance from 1994 to 1996.
Last Thursday, Bankers Trust pleaded guilty in U.S. District Court inManhattan to federal charges, and agreed to pay $60 million to the federalgovernment and $3.5 million to New York State to which Bankers Trust wasobligated to remit some unclaimed funds.
In the memo, obtained by Securities Industry News, written in aquestion-and-answer format, the bank explained how it became embroiled inthe bookkeeping scandal involving former employees of its securitiesservices business. Allegations of record-keeping problems were firstreported in Securities Industry Daily (now Securities Industry News) in1996.
The bank said its 1998 financials will reflect the $63.5 million infines and some associated costs related to the bookkeeping scandal. Thefour-page document said the settlement "won't have an impact on BankersTrust's business." It said the actions took place long ago and were"addressed vigorously by a new management."
New management, led by Mary Cirillo, who joined BT as head of GlobalInstitutional Services in July 1997, established new legal and riskmanagement controls and tightened reporting structures, including makingthe new controller report to the corporate controller rather than to thehead of securities services as had been the case.
Indicating that the $19.1 million was not a significant amount, thememo said, "The total value of principal and interest payments in oursecurities custody business alone averages more than $1 billion a day."
The bank also sought to assuage concerns that its deal with DeutscheBank would be affected. "Bankers Trust and Deutsche Bank continue to planthe integration of their two firms, with the expectation that their mergerwill be completed in the second quarter."
The bank said 13 former employees, who were not identified, made anumber of false entries in the bank's books and records before being caughtin early 1996. The entries involved unclaimed funds that were supposed toremain in suspense accounts that would be returned to either their rightfulowners or to the state. Instead the officials used the entries to boost thebottom line of their divisions to "improve their performance evaluations."
In its memo, Bankers Trust said that when it discovered the scam inMarch 1996 it immediately notified banking regulators and the U.S.Attorney's Office for the Southern District of New York. Responding toclaims that it took too long to uncover the scam, the bank said that duringits investigation, it pored over 2,300 errors and claims tickets in thepayments business, 2.5 million pieces of e-mail, and researched more than8,000 archived files.
As previously reported, when asked about bookkeeping irregularities in1996, BT securities services officials-through spokesman no longer at thebank-vehemently denied that there were any problems associated with theabrupt resignations of custody operations executives, who left on the sameday in 1996. Senior-level officials of the bank later that year concededthat there were bookkeeping problems, but classified them as "minor" andrelated to the actions of a single individual. B.J. Kingdon, who headedsecurities services at the time, refused to name the individual involved,calling him "well intentioned." Kingdon left the bank in December 1996 tomove to Ireland, said industry sources.Copyright c 1999 American Banker, Inc. All Rights Reserved
