ABUSE OF STRUCTURED FINANCIAL PRODUCTS- Misusing Basket Options to Avoid Taxes and Leverage Limits MAJORITY AND MINORITY STAFF REPORT

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In addition to moving assets from MAPS accounts to the brokerage account of a related
entity, OGI, George Weiss negotiated a “Master Netting Agreement” with Deutsche Bank, which
allowed it to avoid financing charges when it had assets in MAPS accounts that left it
economically neutral when combined with assets in the OGI prime brokerage account. 381 This
2003 agreement allowed George Weiss to offset assets from the two accounts, even though the
assets in the OGI account were held in the name of a George Weiss entity and the assets in the
MAPS account were held in the name of Deutsche Bank. That Deutsche Bank allowed this
arrangement for some of the MAPS transactions conducted with George Weiss shows that the
bank, as well as George Weiss, viewed the assets in the basket option accounts as belonging to
the hedge fund rather than the bank.
When Deutsche Bank restructured the MAPS options in 2008, Deutsche Bank decided
that it would no longer allow George Weiss to “cross sell positions” held in its MAPS accounts
to its OGI prime brokerage account. 382
(b) Using MAPS Assets as Collateral for Other Accounts
Despite the fact that the assets in the MAPS accounts – and the accounts themselves –
were held in the name of Deutsche Bank, for several years, Deutsche Bank allowed George
Weiss to use the options as collateral in other financial transactions. For example, Deutsche
Bank permitted George Weiss to use “100% of the options market value to cross collateralize its
OGI account,” a prime brokerage account also located at Deutsche Bank. 383 When asked,
George Weiss told the Subcommittee that the bank had agreed to the collateral arrangement,
because of the long duration of its basket options and the relatively large amount of equity that
had accrued in its MAPS option accounts. 384 George Weiss indicated that the bank had also
permitted it to pledge the MAPS option accounts as collateral for a line of credit offered by
Deutsche Bank, which the hedge fund then used to run its day-to-day business. 385 In both cases,
the bank essentially allowed the hedge fund to treat the option account assets as if the hedge fund
owned them.
In response to questions, George Weiss COO Frederick Doucette told the Subcommittee
that neither George Weiss nor Deutsche Bank had fully considered what would happen if a
margin call on the OGI account had required Deutsche Bank to draw upon the option equity as
381 6/16/2003 “Master Netting Agreement,” GWA, LLC, OGI Associates, and Deutsche Bank, GWALLC-PSI-
0003427.
382 See, e.g., 10/26/2009 email from Jeffrey Dillabough, GWA, to Frank Nelson, Deutsche Bank, “DB/Weiss MAPS
option,” DB-PSI 00036700 (noting the restructured MAPS option would no longer allow George Weiss to “cross
sell” assets from a MAPS account to a prime brokerage account as part of George Weiss’ “routine rebalancing
activities”); Subcommittee interview of Frederick Doucette, GWA (5/23/2014).
383 See id. (noting that George Weiss had been allowed to use 100% of the option market value to “cross
collateralize” its prime brokerage account at OGI).
384 Subcommittee interview of Frederick Doucette, GWA (5/23/2014).
385 Id.