Exclusive: Citi affect customer "standard" monitoring (Reuters)

NEW YORK/BOSTON (Reuters)-after a massive data breach last month, Citigroup did not offer its customers hacked the same degree of protection identity theft that provide many other companies, privacy advocates and critics.

For customers interested in Citigroup, which had more than 360,000 credit card accounts exposed last month, has sent letters this month with tips on protecting yourself against identity theft.

But unlike other large u.s. companies, violated by cybercriminals, Citigroup did not offer to buy or give all customers affected one year of credit monitoring services, preventive file according to a sample of a letter, the Bank sent to many customers and filed with the regulators in Maine.

A year of monitoring has become a standard that offers large companies after customer information is violated, to reassure customers and to protect them from identity theft, privacy advocates and consumers, he said.

"Consumers might wish to turn to Citibank and ask them to do more. It has become rather trivial to offer credit monitoring these days, "Ruth Susswein, Deputy Director of the national consumers ' priorities for action, told Reuters.

"This is really what standard they can do," he said.

The Bank did remind consumers that could put a fraud alert on their credit file, which tells creditors to contact the consumer before allowing an account must be opened in their name.

Credit monitoring services typically do more, such as tracking consumer credit reports for signs that their identities were stolen and giving them early warnings of theft.

Letter to Citigroup clients offers special services for customers that consider their identities have been stolen. Bank spokesman Sean Kevelighan said that clients by calling a toll free number mentioned in the letter would be automatically offered services including at least six months of monitoring.

Hackers failed to steal social security numbers with the Citi data breach. In general, when they have been compromised social security numbers, there is little risk of new account fraud, said Paul Stephens, Director of policy and advocacy for Privacy Rights Clearinghouse, a San Diego non-profit that records violations.

But the facilities are relatively inexpensive and offers now seem to be the norm after most of the violations, he added.

The Bank, already facing legal pressure on its disclosure delayed fracture, now faces additional criticism from supporters who call his reply miser.

"Citigroup has need to take this latest violation more serious than what they have," said Marc Rotenberg, Executive Director of the Electronic Privacy Information Center.

Rotenberg, who testified this week before the Senate Banking Committee of the United States for cybersecurity in the financial sector, told Reuters that companies generally require additional steps such as reducing the amount of personal information held on file.

OPEN RECORDS

Citigroup, the third largest u.s. Bank, including a sample of the letter sent to holders of 703 accounts in Maine, in a filing with the Office of the Attorney General William Schneider. Maine is one of a number of States that require organizations to report when personal data is compromised. Officials provided the letter to Reuters in response to an open records request.

In his letter Citigroup advises customers to "remain vigilant over the next 12 or 24 months of your account activity monitoring" and tells them that they can put a "fraud alert" on their credit files.

Kevelighan said did not directly because the Bank did not make an offer wider free credit monitoring to date.

He said the Bank is "detection rate of satisfaction for nearly 90 percent with customers by contacting us in particular, were influenced by this," based on evaluations by customer service agents who manage their calls. He also reiterated that customers would not be responsible for any unauthorized use of their Citi accounts.

Citigroup said its cyberattackers not stealing social security numbers of its customers or card security numbers and "none of the data violated was sufficient to perpetrate fraud."

Privacy and security experts, said hackers could still find ways to use customer names, account numbers and email addresses to steal their identity.

"We still think that the violation is very serious," said Rotenberg.

Monitoring was not always common. TJX Companies initially refused to offer the service after it disclosed a violation of important data in 2007, but eventually offered three years of monitoring for some customers as part of a settlement of a class-action lawsuit.

Now the offers are more standard. Other documents from Maine delineate a myriad of other breaches of the data to dozens of companies, universities and other organizations. In many cases, companies mentioned that would free credit monitoring as part of their response, such as when the RiverSource funds unit of Ameriprise Financial said a former employee was unable to return the electronic devices containing client names and social security numbers.

(Edited by Steve Orlofsky)

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Exclusive: Deutsche Cooking of top trader sparks probe (Reuters)

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NEW YORK (Reuters) – In the fall of 2009, Deutsche Bank quietly fired one of its top derivative traders in London after a colleague in New York complained about finding "substantial trading anomalies" in a multibillion dollar portfolio of high-risk credit default swaps managed by the German-based bank, Reuters has learned.

The bank dismissed Alex Bernand after a quick internal investigation prompted by the employee's complaint led to the discovery of improper trading in one of Bernand's personal brokerage accounts, according to documents seen by Reuters and interviews with people familiar with the situation.

The documents, part of a Sarbanes-Oxley whistleblower action filed against Deutsche in May 2010 by the employee in New York, also reveal that the Securities and Exchange Commission opened an inquiry last year into a related allegation that some of the assets in the derivatives portfolio overseen by Bernand may have been improperly valued in order to hide trading losses.

Deutsche bank spokeswoman Renee Calabro declined to comment on Bernand's dismissal. But she said the allegation that some assets in the bank's derivatives book had been improperly valued was investigated by the bank and is "wholly unfounded."

The SEC investigation and Bernand's October 2009 firing, neither of which has been previously reported, come as Deutsche is aggressively winding down the portion of its derivatives trading business that Bernand had overseen. Earlier this month, the bank reported in an investor presentation that its plan to unwind its "high-risk" credit correlation portfolio "is well ahead" of schedule. The bank first announced a plan to begin "de-risking" some of its derivatives trading desks in late 2008.

In January, Deutsche settled the whistleblower case by agreeing to pay $900,000 to trader Matthew Simpson and promoting him to managing director shortly before he voluntarily agreed to leave the bank in April. It was the largest Sarbanes-Oxley whistleblower settlement for a complaint filed in 2010. Simpson, who now works for Rochdale Securities in Stamford, Connecticut, did not return a phone call seeking comment.

UNFOUNDED ALLEGATION

"This complaint, which is over a year old, has been the subject of a thorough investigation, and we believe that any allegations about financial misreporting are wholly unfounded," said Calabro, who declined to comment on the terms of the settlement with Simpson. "The bank is cooperating with the SEC on its review of the matter."

An SEC spokesman declined to comment.

Bernand, who lives in France, also declined to comment. On his LinkedIn profile, Bernand describes himself as an "independent philanthropy professional."

Simpson's and Bernand's names were redacted from the whistleblower documents seen by Reuters, but their identities were confirmed by two people familiar with the situation.

In its settlement agreement with Simpson, Deutsche also denied "any wrongdoing in connection with the matter." In light of the settlement, the U.S. Department of Labor in February closed its investigation into Simpson's claim that he had been retaliated against by some of his superiors for bringing the allegations of improper trading to the attention of the bank's compliance department.

The firing of Bernand, a one-time rising star in the derivatives world, is something of an embarrassment for Deutsche. In 2006, the bank issued a press release to trumpet his hiring from Bank of America as its global head of credit correlation. At BofA, Bernand had pretty much built the Charlotte, North Carolina-based bank's structured credit trading business from scratch.

Inside Deutsche, the portfolio that Bernand oversaw from London was called the "exotics book," because many of the derivatives in the portfolio were tied to complex securities. At its peak, the portfolio was one of the largest on Wall Street with the assets underlying the trades valued in the tens of billions of dollars.

ILLUSORY PROFITS

The bank's credit correlation desk specialized in using credit default swaps to make proprietary trades that were aimed at hedging some of the bank's exposure to potentially risky corporate bonds, leveraged loans, currencies, indexes and commercial paper. Many of the trades put on by correlation traders involve synthetic collateralized debt obligations (CDOs), financial instruments that use credit default swaps to get exposure to various bonds and other assets.

Some have blamed credit default swaps -- a type of derivative that is supposed to provide a level of insurance against an underlying asset going bad -- with exacerbating the global financial crisis because they increase the level of risk on balance sheets of the world's major banks. However, the synthetic CDOs traded by the correlation desk were not like the more popular variant of CDOs which were stuffed with subprime mortgage securities.

Janet Tavakoli, a Chicago-based derivatives consultant who has written several books on credit derivatives and structured products, said many bank managements did not fully appreciate the illusory nature of the trading profits being generated from derivatives correlation desks before the financial crisis. She said those profits often disappeared and turned into losses when the underlying assets turned south.

"The thing about correlation desks is that it will appear you are making a lot money from trades, but it is all money at risk," said Tavakoli. "I call this kind of trading an invisible hedge fund."

In an early 2010 regulatory filing, Deutsche attributed some of the rise in the bank's value-at-risk, or VAR, at the end of 2009 to a "recalibration of parameters in the Group's credit correlation business."

On Wall Street, VAR is one metric used by a bank to estimate how much money it could conceivably lose in a day if all of its trading bets and hedges went awry. It's an imperfect measurement, but one followed by most industry analysts.

A person familiar with Deutsche said the bank is winding down the credit correlation desk to both reduce its risk profile and better comply with the so-called Volcker Rule's ban on proprietary trading in the United States.

The bank's internal investigation into Simpson's allegations was overseen by the big New York law firm Fried Frank.

The revelation that the SEC is investigating the valuations used for some of Deutsche's derivatives portfolio comes at an awkward time. Over the past few months, the bank has taken some high-profile lumps for its role in contributing to the financial mess.

A Senate report released in April faulted Deutsche for continuing to churn out collateralized debt obligations and other securities backed by subprime mortgages even as the housing market in the United States was starting to crumble. The report from the Senate's Permanent Subcommittee on Investigations said Deutsche aggressively marketed CDOs to its client, "despite the negative views of its most senior CDO trader" about the failing health of the housing market.

Just last month, federal prosecutors in New York filed a civil suit against Deutsche, claiming its MortgageIT subsidiary repeatedly lied about the quality of the mortgages it was issuing to obtain federal guarantees on those iffy home loans. The government seeks to recoup some $1 billion in losses it incurred from insuring the mortgages. Deutsche contends most of the problem loans were issued before the bank acquired MortgageIT in 2007.

Before filing his whistleblower complaint last May, Simpson had built a long track record at Deutsche. Over the dozen years he worked for the bank in New York, he held positions in finance, risk management and then trading. He joined the firm's correlation trading group in 2008 and was responsible for trading derivatives tied to bonds and currencies.

In his whistleblower complaint, Simpson said when he reported his concerns about trading improprieties to Deutsche's compliance department he "expressed concerns for future retaliations."

Among the acts of retaliation that Simpson alleged were being passed over for a promotion in February 2010 and later "stripped" of all his trading and management responsibilities. Calabro said the bank denies Simpson's claim of retaliation.

(Reported by Matthew Goldstein; Editing by Michael Williams and Claudia Parsons)

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