The former CEO of German bank IKB Deutsche Industriebank, Stefan Ortseifen, was convicted today and sentenced to 10 months of probation and a fine of €100,000 (about $127,000) for allegedly misleading investors on how much the bank was involved in the subprime crisis in 2007.
If Ortseifen does anything the judge deems wrong in the those 10 months, he could go to jail. Otherwise, the case will probably be thrown out.
The ruling makes him the first German banker to be held accountable for actions linked to the financial crisis.
Not that he agrees with it.
He said he was sorry that “the IKB was the first German institute to fall into an existential crisis”, but that he is convinced that “he hasn’t made himself blameworthy”, the German newspaper Die Zeit reports.
But here’s what the Dusseldorf State Court has a problem with: He sent out a press release in July 2007 that apparently embellished the company’s situation.
A few days later, everyone realised that the bank was facing tremendous difficulties and had to be bailed out, partially by the German government, to save it from bankruptcy. Together with KFW development bank, the Germany spent €10 billion ($12.7 billion) on the bailout.
IKB indeed felt the pain of the U.S. subprime crisis, perhaps most famously through the ABACUS deal, but it was the firm’s investment vehicle Rhineland Funding that did the most damage to IKB. The bank invested in Rhinebridge Funding, a corporation that was exposed to the subprime crisis.
Ortseifen resigned shortly after he sent out the press release and, in August 2008, 90.8% of IKB shares were sold to Lone Star Funds, a private equity firm.
Ortseifen has been listening to high profile witnesses like former Eon Chief Ulrich Hartmann and the CEO of Deutsche Bank, Josef Ackermann.
Today he was handed a probation sentence, but sadly for him, this ordeal might not end with the court’s decision as his lawyers intend to appeal.
And the Financial Times Deutschland mentions the ongoing lawsuits from stock holders. If they win, IKB can ask Ortseifen to pay personally, in which case he may be ruined.