Case study 1:Securities sold without a securities prospectus

The whistleblower: Employee V had misgivings about the manner in which her employer was selling certain securities. She was of the opinion that important information was missing from the prospectus and the prospectus had not been approved by BaFin. In a first step she tried to talk to her superior and her colleagues about the case. Her employer assured her that everything was in order.

After becoming increasingly concerned about these irregularities, V described the incident in an email to the Contact Point for Whistleblowers and sent the sales documents. She pointed out that it was important for her as an employee of the company to keep her identity protected.

The team of the Contact Point for Whistleblowers confirmed receipt of the report and forwarded it to the specialist supervisor responsible for market surveillance in the area of securities and investment products.

The specialist supervisor: “We receive information from various sources but information given to us by employees is especially useful and can help us get to the root of the problem quickly. In this particular case, I used the report as an occasion to ask the company for information about their procedure for selling securities and about their prospectuses. After completing my examination, I ordered the company to discontinue the sale of these securities and imposed a fine. In addition, I published a notification on the BaFin website that the company had been prohibited by BaFin to sell these securities.”

Case study 2:Real estate transactions without complying with the rules of consent

The whistleblower: Managing directors X and Y do not always agree on what constitutes profitable business. In particular, managing director X who is responsible for the front office, is of the opinion that the back office (a business area that does not have direct contact with customers) is too cautious in its dealings. L, who is authorised signatory (Prokuristin), notices that in the risk-relevant business managing director X has arranged a real estate transaction without agreeing this with managing director Y. L does not know whether this is a one-off case. However, she fears that the relationship between the two managing directors could have negative consequences for the institution and therefore reports her suspicion to the Contact Point for Whistleblowers.

The team of the Contact Point for Whistleblowers confirmed receipt of the report and forwarded it anonymously to the competent specialist supervisor.

The specialist supervisor: “We used the information we received from the employee as an occasion to examine, as part of a special inspection, the risk-relevant lending business of the company, with a special focus on its compliance with organisational rules. An inspection was also carried out of the real estate business and of the collateral valuation procedure. Deficiencies identified in the credit process were remedied and the supervisory board, by being included in the matter, was also informed that the relationship between the managing directors was not as it should be.”

Case study 3:Investment Supervision

The whistleblower: X has been working as risk manager at asset management company Y for approx. 1.5 years. In the course of his daily work, Mr X notices that, for one of the common funds for which he is responsible, the simple approach under section 5 (2) sentence 1 second half-sentence (second alternative) of the German Derivatives Regulation (Derivateverordnung) was being used to calculate the utilisation of the market risk limit as defined in section 197 (2) of the German Investment Code (Kapitalanlagegesetzbuch). However, based on his own estimate of the risk profile of the investment fund, X comes to the conclusion that only the qualified approach under section 5 (2) sentence 1 second half-sentence (1st alternative) in conjunction with sections 7 – 14 of the Derivatives Regulation should be used to calculate the utilisation of the market risk limit for the common fund in question. Using his expertise, X believes that both the investment strategy pursued by the fund and the type and complexity of the derivatives deployed constitute substantial arguments for this assessment. However, X’s attempt to intervene by approaching his superior-ranking departmental head and the management board of investment fund company Y remained unsuccessful due to X’s alleged lack of practical experience.

X therefore contacted BaFin’s Contact Point for Whistleblowers and asked them to examine the facts of the case, stressing that the preservation of strict confidentiality was of paramount importance to him. X added that he might be mistaken and he did not want to put his future professional career at risk.

The team of the Contact Point for Whistleblowers confirmed receipt of the report and forwarded it to the competent specialist supervisor at BaFin’s investment supervision.

The competent specialist supervisor follows up on the case under strict instructions to protect the whistleblower’s identity while at the same time clarifying the facts of the case as required. To prevent X from unnecessarily becoming the direct focus of suspicion and protect his confidentiality, the specialist division calls on the company to provide documents that show how it calculates the utilisation of the market risk limit as part of a sample inspection of several investment funds, one of which was the fund reported by X.

Case study 4:Unauthorised business

The whistleblower: F is employed at a company that advertises secure returns of 5% on investments on its website. Many interested persons have already requested contractual documents and made payments to accounts of the company. There have recently been cases of customers repeatedly contacting the company and asking for their investments to be released and their money returned. However, the company stalled off the repayments of the customers’ investments time and again. This procedure struck F as unusual and therefore prompted him to contact BaFin’s Contact Point for Whistleblowers via BKMS®.

The whistleblower contact point thanked F for his information and requested him, after discussing the matter with the competent specialist division, to submit the contractual and advertising documents being used by the company.

The competent division examined the information and documents and launched investigation measures. In a first step, a formal request for information and documentation was made to the company. In the further course of the investigations, a search was carried out of the company premises and an automated account information access procedure was initiated. It transpired that the company was conducting business activities for which prior authorisation from BaFin was required.

As a consequence of these official investigations, the company was ordered to immediately terminate and wind up the unauthorised business activities.