On Monday, the United States announced that it had filed a civil complaint against the former Deutsche Bank head of subprime trading, Paul Mangione. The United States has accused Mangione of engaging in a fraudulent scheme to misrepresent certain characteristics of loans backing 2 residential mortgage-backed securities, which were sold to investors by Deutsche Bank. It is believed that the scheme resulted in hundreds of millions of dollars in losses.
The suit has been brought in relation to the Financial Institutions Reform, Recovery and Enforcement Act of 1989. The complaint alleges that Mangione engaged in a scheme to sell a $1 billion dollar security, ACE 2007-HE4, and a $400 million dollar security, ACE 2007-HE5, by misleading investors. It is also alleged that the defendant misled investors in relation to the practices of Deutsche Bank’s subsidiary, DB Home Lending LLC, which happened to be the primary originator of the loans included in the deals.
It is alleged that Mangione approved offering documents, despite knowing they contained misleading statements about the loan. The documents also falsely represented that DB Home had developed internal underwriting guidelines and instituted a quality control protocol to monitor loan production with the goal of improving the quality of loan production. The complaint claims that Mangione knew these statements were untrue.
In January of this year, the Department of Justice settled a linked RMBS matter with Deutsche Bank.