One of the specialties of reknowned New York law firm of Labaton Sucharow is representing whistleblowers from the financial world: bankers wanting to expose the dubious or illegal practices of their employers. That's why Dr. Eric Ben-Artzi, looking bleary-eyed and tense, is sitting in the firm's luxurious offices on the 35th floor of a skyscraper with a view of Wall Street and of the office tower, only 300 meters (about 1,000 feet) away, of his former employer: Deutsche Bank.

Until the end of last year, Ben-Artzi worked at the Frankfurt-based banking group's North American headquarters in Manhattan. His title was Vice President, Legal, Risk & Capital Division, and his responsibilities included the disclosure of "inadequate applications of quantitative models for gap option evaluations of leveraged super-senior tranches, secured by credit default swaps."

It sounds terribly complicated and arcane, but that is because it was Ben-Artzi's job to examine and keep an eye on the most complex and exotic financial instruments, the ones that many bankers themselves no longer understood but were traded in enormous quantities in the years before the financial crisis.

Ben-Artzi dug through numbers and computer models, and reviewed whether what the bank told customers about its convoluted securities and claimed in its financial statements was actually true. In the end, he concluded that it wasn't.

According to Ben-Artzi's calculations, there were billions in liabilities that should have appeared on the bank's balance sheet but didn't. The former risk analyst is convinced that Deutsche Bank whitewashed the figures for high-risk transactions, and that in doing so it acted illegally. According to Ben-Artzi, "that is fraud."

Ben-Artzi first told his superiors about his concerns, then he contacted more senior members of management and, finally, the bank's tip hotline. A few months later, at the end of 2011, he was fired. The bank told him that it was because his department was being dissolved and incorporated into the new risk center in Berlin, but Ben-Artzi insists that it was to punish him for his perseverance.

In the meantime, Ben-Artzi had notified the US Securities and Exchange Commission (SEC). As it turned out, he wasn't the first. In the spring of 2010, another Deutsche Bank employee -- allegedly a trader named Matthew Simpson -- told his superiors that complex transactions had been posted incorrectly. Deutsche Bank initially investigated the allegations internally and then contacted the SEC in March. Another employee had also reportedly informed the SEC about wrong accounting practices at the bank.

Allegations of Concealed Losses

Regulators have been investigating Deutsche Bank since then.

If the accusations are true, the consequences will be enormous, because it would mean that Deutsche Bank had embellished its financial statements. Even worse, the losses that were concealed, numbering in the billions, may have been so serious that the bank would have had to be bailed out by the government. And both current co-CEO Anshu Jain and his predecessor, Josef Ackermann, must have known about and approved of the practices.

The bank vehemently denies the suspicion. "The allegations of improper reporting practices at Deutsche Bank are more than two-and-a-half years old", the bank said, noting that they were the subject of a careful and extensive investigation and proven to be unfounded. "We cooperated with the SEC in this matter and will continue to do so."

It isn't the first time that Deutsche Bank is being confronted with serious allegations. Many customers have sued for damages in past years because they felt taken in by complex mortgage deals in the United States. Even the United States Department of Justice is suing the bank.

Most of the legal disputes originated in the tumultuous years between the turn of the millennium and the escalation of the financial crisis in 2008. During that time Deutsche Bank, headed by Ackermann and Jain, who was responsible for the bank's capital markets business, rose to become one of the world's leading investment banks.

The key to its ascent lay in the United States, and specifically in the business involving increasingly risky financial constructs. Deutsche Bank created the securities, first to sell them to investors and then to earn money again by trading in them later on.

The business went splendidly for years, and its success helped Jain position himself as Ackermann's crown prince. But then the American real estate bubble burst and many financial bets that had been based on this bubble fell apart. Finally banks collapsed.

Did Incorrect Accounting Help Deutsche Weather Crisis?

Deutsche Bank did not collapse. It didn't even need government assistance, as Ackermann was always quick to point out, even though it benefited greatly from the bailouts of many other banks. "I would be ashamed if we were to accept government money in this crisis," he told bank managers in October 2008.

But the Ben-Artzi case, which is now creating headlines, raises the question of whether Deutsche Bank only came through the crisis relatively well because it incorrectly reported the figures on its balance sheet.

So far only one thing is certain, namely that the numbers in question involved deals with exotic financial instruments, ones that Deutsche Bank had in fact intended to sell to customers but ended up being stuck with when the financial crisis erupted.

The financial crisis is also the reason why it is so difficult to ascertain whether Deutsche Bank reported its figures correctly. When a bank holds securities purely to resell them, it always has to report them at current values. But the market for many complex securities collapsed during this period, so that there were no reliable prices. For this reason, banks derived the values stated on their balance sheets from models. But they weren't allowed to come up with arbitrary valuations.

The deals Ben-Artzi criticizes revolve around "Leveraged Super Senior Notes" (LSS). In simplified terms, these are securities based on a very large basket of a wide range of credit instruments. In this controversial case, for example, they included the bonds of global corporations.

LSS notes are an insurance policy of sorts for these baskets. In a crisis, the market value of this insurance increases, while the securities behind the debt obligations simultaneously lose value. The former risk manager alleges that Deutsche Bank did not portray this loss of value correctly. According to Ben-Artzi, it isn't just a matter of faulty risk assessment, which is something he says is open for debate. "It isn't about a risk. No, this is valuation. There's no gray area. It's completely black."

The difference between the valuations can be of vital importance to a bank's stability in a financial crisis. At the time to which the allegations apply, Deutsche Bank was holding LSS notes with a face value of $130 billion (€100 billion). The bank itself once noted that it was the top player in the business and held a market share of up to 80 percent.

Its critics say that if Deutsche Bank had reported the numbers the way it should have, it might have incurred a loss of $4 billion, and that it could have been higher than that.

Is that why the bank reported the figures incorrectly at the time, as Ben-Artzi alleges? Was it clear to the key players that the only way the bank could make it through the financial crisis would be to lie to its customers, shareholders, the public and banking regulators?

Big Risk to Deutsche Bank's Image

And if that had been the case, what kind of a culture prevails in a company when employees whose job is to uncover problems are silenced when they actually do?

The answers to these questions could be fatal for the reputation of Deutsche Bank. And they could destroy the image, so carefully nurtured by its management, that Deutsche Bank is one of the few major players on Wall Street to have emerged from the financial crisis unscathed.

It's unlikely that the charges will melt into thin air or that the bank will simply be able to discredit Ben-Artzi. His qualifications can hardly be called into question. He holds a Ph.D. in mathematics from New York University and worked at Goldman Sachs before going to Deutsche Bank. He also doesn't come across as a reckless person or a troublemaker on a crusade. On the contrary, he looks like a model investment banker, with his boyish face and dark blue, tailored suit and striped tie. He still sounds enthusiastic about finance when he talks.

Why then is he attacking his own employer so aggressively? "I never wanted to be a whistleblower," says Ben-Artzi, noting that at first he did nothing more than make his superior aware of what he felt was an obvious problem. Then, he says, he also spoke with managers outside his department, including some in the department responsible for the valuation of the financial instruments. But his concerns were not allayed. On the contrary, he says, "they just grew worse and worse."

After he had taken his criticism to higher levels within the bank, using official channels, all discussion suddenly stopped. Instead, says Ben-Artzi, he was "isolated," "shouted at" and "harassed."

Why didn't he just drop the issue when it became clear that he wasn't making any headway and might even be jeopardizing his career?

"At the point that I went to the hotline, I was worried about being implicated myself in fraud. So that it essentially makes me an accessory to a coverup." He realized "that it was systematic," which is why he notified the SEC.

the moment when I discovered the irregularities, I had to pursue them, or else I would have implicated myself as an accessory to a cover-up." He realized "that it was a systematic issue," which is why he notified the SEC.

External Auditors Approved Valuations

Some also question Ben-Artzi's motives. They say that it's no accident that he is now going public with his charges again, because he is hoping to receive the reward promised to whistleblowers in the United States: up to 30 percent of the potentially imposed fine. A few months ago, the case of a former employee of the major Swiss bank UBS caused a stir when he collected more than $100 million for information he had provided on tax evasion.

Regardless of what conclusion will be reached in the end on these controversial events: many at the bank were involved in them, right up to the highest management level. The valuation approach for LSS notes was developed in the Global Markets Department, the department Anshu Jain headed at the time. However, experts reporting to Chief Financial Officer Stefan Krause also examined the accounting models.

The Risk Management Department, under Hugo Bänziger, analyzed the deals. Like the auditors from KPMG, it concluded that there wasn't a problem. Although insiders report that the auditors arrived at a lower overall valuation for the bank's securities portfolio in 2009, many other transactions were involved, and the total amount in question was only in the triple-digit millions.

In the spring of 2010, when the first whistleblowers were criticizing the bank's accounting practices, it hired the Fried Frank law firm, which concluded that the practice was correct.

Deals of the magnitude in question are reviewed by the risk committee of the supervisory board, which, in 2009, included Clemens Börsig, the head of the committee, former SAP CEO Henning Kagermann and Briton Peter Job. Germany's Federal Financial Supervisory Authority (BaFin) also regularly attends meetings of the bank's risk committee.

Some in financial circles also point out that the SEC's investigations yielded nothing in two-and-a-half years, and that Deutsche Bank didn't receive so much as a subpoena to produce documents. On the other hand, it's not unusual for the SEC to take its time with its investigations.

This means nothing, says Ben-Artzi's attorney, Jordan Thomas. If the bank is voluntarily answering the SEC's questions, he explains, there is no need for a subpoena to force it to comply. Thomas should know, having worked at the SEC in his previous job. This certainly doesn't improve the situation for Deutsche Bank. It's unlikely that one of New York's best known law firms specializing in finance and a former SEC official would risk their reputation on a case that has no merit.

It's just as unlikely that the SEC will simply allow its investigation to rest. After the financial crisis, the SEC faced harsh criticism for having repeatedly ignored signs of dubious goings-on. This is precisely why the new head of the SEC, Mary Schapiro, established the whistleblower hotline, which Ben-Artzi used -- and that is now turning him into one of the first prominent cases over whether the new system actually works.

'Another Torpedo That Could Be Fired at Jain'

For Deutsche Bank, the new headlines about controversial accounting practices come at a bad time. The consequences of murky financial dealings already influenced the dispute over who was to succeed Ackermann. But even since Jain and Jürgen Fitschen replaced him in June, the mood has been tense.

"The new leadership is in a constant race against the past," says an insider, noting that the bank keeps having to deal with problems arising from the past, most of which stemmed from the investment banking division formerly headed by Jain. According to the insider, it's like a Pandora's box that keeps opening up again.

This is why Jain's internal critics feel vindicated by Ben-Artzi's allegations, even if the responsibility for the reporting of LSS transactions was distributed among many in top management. "But this is yet another torpedo that could be fired at Jain", says one bank manager.

The reaction of the new supervisory board chairman, Paul Achleitner, shows how seriously senior management takes the "Ben-Artzi case." Achleitner, who succeeded Clemens Börsig in June, has announced internally that he plans to take a careful look at the case. Although the board has already formed a clear opinion on the case, says Achleitner, he wants to review what happened one more time, because he wasn't with the bank yet during the time period to which the allegations apply.