Shareholders may try to prove in their proposed class action before U.S. District Judge Jed Rakoff in Manhattan that the German bank was aware its know-your-customer and anti-money laundering controls were ineffective, and that its share price fell as the truth became known.
Rakoff stated in a 30-page decision that the complaint described specific processes that Deutsche Bank knowingly undermined by a "unwritten but pervasive practice" of exempting wealthy, politically connected clients from normal internal scrutiny.
Shareholders may also file claims against Chief Executive Christian Sewing and his predecessor John Cryan, according to Rakoff. He dismissed allegations against Deutsche Bank's CFO and his predecessor.
A spokesman for Deutsche Bank declined to comment. The lawsuit covers investors who purchased Deutsche Bank securities between March 14, 2017 and May 12, 2020.
Since taking over in 2018, Sewing has increased profits and attempted to reassure investors that the bank had moved past its internal controls shortcomings.
Failures to better monitor its work for Epstein, which resulted in a $150 million fine from a New York regulator in 2020, and dealings with Danske Bank's Estonia branch, which was embroiled in a massive money laundering scandal, were among them.
The defendants claimed that the bank's statements about its compliance processes were "aspirational" or "puffery," and that shareholders failed to demonstrate any intent to defraud.
Rakoff, on the other hand, claimed that the complaint adequately alleged that Sewing and Cryan "were personally aware of deficiencies in the bank's KYC and AML practices" that rendered the filings they signed false or misleading.
According to Emma Gilmore, a shareholder lawyer, companies have long tried to avoid liability by claiming that their statements about compliance were aspirational.
"Judge Rakoff's decision makes clear that this argument is not only extraordinarily cynical, but it has no legal basis," Gilmore wrote in an email.