Bankers Trust accused in $195m 'rip-off' lawsuit

DAVID USBORNE

New York

The Bankers Trust of New York found itself engulfed yesterday in a maelstrom of allegations of fraud and systematic corruption in its derivatives division with the long-awaited publication of court filings against the bank in a multi-million-dollar lawsuit by Procter & Gamble.

Details of how traders at the bank apparently discussed a so-called "rip- off factor" - or ROF - in their dealings with nine different corporate customers, including P&G, are included in some 300,000 pages of documents and 6,500 tape recordings, submitted by P&G in its court filings.

Based in Cincinnati, P&G is claiming $195.5m in damages from the bank, which, it alleges, deliberately misled the company on the risks involved in derivatives purchased from it. P&G took a $102m after-tax charge on losses sustained on its Bankers Trust derivatives.

The company escalated its assault against the bank last month, when it added racketeering and corruption charges to its suit. Original plans by the financial magazine Business Week to publish the documents and tapes, obtained by P&G from Bankers through the legal discovery process, were blocked by a Detroit judge who sealed them. The papers were unsealed this week, however, and extracts are to be carried in the magazine's cover story due on newstands today.

It is not the first time that Bankers Trust has been hit by allegations related to its derivatives business. Its practices were highlighted in several media reports last year, including two Fortune magazine cover stories, and the bank was fined $10 million by regulators for lying to another of its customers, Gibson Greetings.

In its filings, P&G asserts that "fraud was so pervasive and institutionalised that Bankers Trust employees used the acronym 'ROF' - rip-off factor - to describe one method for fleecing clients".

Many of the transcripts of conversations between bank employees seem to support the allegation. In one instance, an employee asks about how to set about winning a client's confidence. "Funny business, you know?" comes the reply. "Lure people into that calm and then just totally fuck 'em."

In one video-taped training session for new employees, a bank instructor is seen describing a hypothetical transaction between Sony, IBM and the bank.

"What Bankers Trust can do... is get in the middle and rip them off - take a little money," the instructor says. He then retracts the comment, saying he has just realised that he is being filmed.

The bank claims that comments such as these have been taken out of context. It also accuses P&G of bringing in the names of eight other companies that apparently sustained derivatives losses, including Sandoz, to distract attention from the company's own failure to manage its account properly and to understand the risks involved.

Suggesting that P&G is indulging in "blackmail", the bank issued a statement saying, "What P&G has done is to use material we provided to manufacture a distorted view of transactions, markets, individuals and the corporation in a manner designed to serve its own objectives and to obscure P&G's own accountability."

Analysts warn, however, that the bank is likely to suffer a further loss of reputation while the lawsuit goes on and suggest that it may be tempted to settle out of court. "Having their name dragged through the mud again is not a plus, and it could have a bad effect on other parts of their business," commented David Berry of Keefe Bruyette & Woods, a New York brokerage firm.

Comment, Page 25

Start your day with The Independent, sign up for daily news emails
New Articles
tvDownton Abbey Christmas special
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
News
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
Arts and Entertainment
Left to right: Stanley Tucci, Sophie Grabol and Christopher Eccleston in ‘Fortitude’
tvSo Sky Atlantic arrived in Iceland to film their new and supposedly snow-bound series 'Fortitude'...
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there