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

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member of Mr. Schwartz’s team raised the issue. 473 According to Deutsche Bank, Mr.
Schwartz’s team was aware of the GLAM, was informed of the MAPS structure in one of the
initial meetings with Deutsche Bank, and did not request any further information, despite the
concerns expressed by the IRS. 474
In the spring of 2012, the Federal Reserve Bank of New York began examining the
MAPS transactions and instructed Deutsche Bank to alert the U.S. Attorney’s Office for the
Southern District of New York, which was overseeing the NPA, about the options. According to
Deutsche Bank’s outside legal counsel, in August 2012, Deutsche Bank contacted the U.S.
Attorney’s Office and then had followup conversations and meetings with the office in
September and December 2012 and February 2013. 475 The Subcommittee is unaware of what
actions, if any, were taken by the U.S. Attorney’s Office on the matter.
Reaction to the GLAM. Due to the NPA and reputational concerns, after the issuance
of the GLAM in 2010, Deutsche Bank determined not to issue any further MAPS options
without evaluating the transaction. 476 However, when the GLAM came out, Deutsche Bank had
coincidentally nearly finished issuing another option to RenTec and chose to finish that process,
completing the option just two days after the GLAM was released. 477 In addition to the new
option, at that time, Deutsche Bank had several other outstanding MAPS options with RenTec. 478
In connection with evaluating the GLAM, Deutsche Bank personnel noted that there was
a “30d [day] right of termination for DB [Deutsche Bank] embedded in all these contracts” that
did not require cause for termination. 479 That provision would have allowed Deutsche Bank to
terminate the contracts, using a method that would have required it to terminate one account at a
time with a gap of twenty exchange business days between each account. 480 Deutsche Bank
declined to terminate the options, however, for several reasons. According to the bank, it
declined to terminate the options, because the post-2008 MAPS structure differed from the
options described in the GLAM; it had acquired a legal opinion stating the new MAPS complied
with the tax law; liquidation of multiple options could have suppressed the option asset values; it
was concerned about its client relationship; and it wanted to protect its reputation as a reliable
counterparty. 481 However, the bank stopped issuing additional MAPS options pending a reevaluation
of the product.
473 6/30/2014 briefing by Deutsche Bank attorneys to the Subcommittee.
474 Id. Officials of the Federal Reserve Bank of New York reviewing the MAPS structure questioned Deutsche
Bank about whether the bank had disclosed MAPS to Bart Schwartz’s team. Deutsche Bank advised the examiners
that it had informed Mr. Schwartz’s team that Deutsche Bank had on its books a transaction like the one reported in
the GLAM, but noted that the conversation was “very short.“ 8/2/2012 meetings notes, “MAPS Meetings
Highlights,” prepared by the Federal Reserve Bank of New York, FRBNY to PSI (MAPs) 000238. [Sealed Exhibit.]
475 6/30/2014 briefing by Deutsche Bank attorneys to the Subcommittee.
476 Id.
477 6/27/2014 letter from Deutsche Bank outside counsel to the Subcommittee, PSI-DeutscheBank-24-000001-003.
478 See “Details of Barrier Option Contracts between Renaissance Technologies LLP and Deutsche Bank from 2000-
2013,” document attachment from Deutsche Bank counsel to Subcommittee, DB-PSI 00052583-85.
479 1/6/2010 email from Axel Niemann to Giovanni Favretti of Deutsche Bank, “MAPS,” DB-PSI-00006875.
480 See 12/15/2008 “Master Investment Advisory Agreement: Execution Copy,” signed by Deutsche Bank and
RenTec, DB-PSI 00000001-047, at 006.
481 6/27/2014 letter from Deutsche Bank outside counsel to the Subcommittee, PSI-DeutscheBank-24-000001-003.