NEW YORK (Reuters) - A U.S. judge on Tuesday refused to allow shareholders to proceed as a group in a lawsuit accusing Deutsche Bank AG (DBKGn.DE) of misrepresenting the risks of mortgage-related investments that were central to the financial crisis.
The ruling by U.S. District Judge Katherine Forrest in New York effectively ends the class action against the German bank, although shareholders could proceed individually.
Forrest ruled that an expert hired by the shareholders to give an opinion on whether the market for Deutsche Bank shares was efficient was unqualified and used a flawed methodology.
“For this court to rely on testimony from someone who lacks real expertise asks this Court to dispense with the need for real qualifications,” Forrest wrote.
Renee Calabro, a spokeswoman for Deutsche Bank, said it was “pleased with the court’s decision.” John Grant, a lawyer for the plaintiffs at Robbins Geller Rudman & Dowd, did not responded immediately to requests for comment.
Filed in 2011, the lawsuit accused Deutsche Bank of issuing false and misleading statements about its health in the run up to and during the global financial crisis.
The lawsuit said Deutsche Bank packaged and sold mortgage-backed securities and collateralized debt obligations that it knew were riskier than it told the market.
The lawsuit also accused Deutsche Bank of misrepresenting its risk management practices and said it was too slow to write down impaired mortgage securities.
The misrepresentations enabled Deutsche Bank to inflate its stock price and maximize its profits, but as the bank began announcing losses in 2008 its stock price fell 87 percent to $21.27 in January 2009 from $159.59 in May 2007, the lawsuit said.
In March, Forrest denied a motion by the bank to dismiss the lawsuit, and the plaintiffs moved to certify plaintiffs who bought shares in the United States from January 3, 2007, through January 16, 2009.
The lawsuit is led by shareholders Building Trades United Pension Trust Fund, Steward Global Equity Income Fund, and Steward International Enhanced Index Fund.
Forrest, in denying class certification on Tuesday, focused extensively on the qualifications of the expert hired by the plaintiffs, Michael Marek.
Forrest said Marek’s expertise came from acting as an expert in securities class actions, which she said was “not sufficient.” She added that he had “not been specially trained by academics in the field; he has not written articles, taught any courses, or conducted any relevant research.”
The judge said Marek’s training instead “appears to have been one year he spent working for a firm after college and then his work for an economist who was later indicted for submitting false declarations.”
The economist, John Torkelsen, pleaded guilty in 2008 to lying to judges about secret payments he took from plaintiffs’ law firms. Among the firms he worked for was Milberg, which at the time was at the center of a massive kickback scandal.
Robbins Geller, which represents the Deutsche Bank plaintiffs, spun out of Milberg in 2004.
Even if Marek was qualified, Forrest said his analysis suffered from “certain significant flaws.”
Forrest said Marek failed to consider that more than 90 percent of Deutsche bank securities were traded outside the United States, in Germany, which he conceded drove U.S. pricing.
Forrest said Marek also failed to consider that, during the time in question, both the United States and Germany instituted short-sale bans, even though he acknowledged arbitrage was an important driver of an efficient market.
Marek did not immediately respond to a call or an email seeking comment.
The case is IBEW Local 90 Pension Fund v. Deutsche Bank AG, et al, U.S. District Court, Southern District of New York, No. 11-04209.
Reporting by Nate Raymond in New York; additional reporting by Jonathan Stempel; Editing by Eddie Evans and Jim Marshall