NY Pension Sues Danske Bank over Money Laundering Scandal

Class action lawsuit claims bank artificially inflated ADR price.

The Plumbers & Pipefitters Local 773 Pension Fund of Glens Falls, New York, has filed a class action lawsuit against Denmark’s largest bank, Danske Bank, accusing it of deceiving investors and artificially inflating its share price by facilitating money laundering through its Estonian bank branch.  

According to court documents, more than $230 billion flowed from Russia and other countries through Danske Bank’s Estonian branch, which the pension fund blamed on “lax controls” and its CEO’s “drive to report outsized profits at all costs.”

The lawsuit said that the bank’s senior executives ignored Estonian financial regulators who stormed its Estonian Branch in 2014 and sent Danske Bank a “scathing” 340-page report that listed a multitude of violations. It also said the bank didn’t translate the report for three years.

Following multiple reports published in The Wall Street Journal in the summer and fall of 2018 about the alleged money laundering, the share price of Danske Bank American depositary receipts (ADRs) plunged to a low of $9.50, 55% off its high of $20.90 in February. According to the lawsuit, the drop in share price erased nearly $2.8 billion in market value. ADRs are negotiable securities that represent securities of a non-US company that trades in the US stock market.

The suit said the defendants are liable for making false statements, or failing to disclose adverse facts known to them about Danske Bank. It said the bank deceived the investing public regarding Danske Bank’s prospects and business; artificially inflated the price of Danske Bank ADRs; and permitted Danske Bank to raise hundreds of millions of dollars issuing and selling bonds on more favorable terms due to its higher corporate debt ratings.

“Though a whistleblower brought the illegal Estonian money laundering to the company’s senior executives’ attention in December 2013, and Danish financial regulators had been investigating the misconduct since at least 2014,” said the suit, “Danske Bank was intentionally less than forthcoming with the Danish financial regulators investigating its misconduct,” adding that it “was actively concealing the extent and severity of its culpability from investors.”

Also named as defendants are former CEO Thomas Borgen, Chairman Ole Andersen, and CFOs Henrik Ramlau-Hansen and Jacob Aarup-Andersen.

The pension fund is being represented by law firm Robbins Geller Rudman & Dowd. Danish law firm NJORD Law Firm has also joined the class action suit, representing plaintiffs from the Nordic region.

“It is our assessment that Danske Bank failed to comply with its obligations to disclose information to the market about the gravity and scale of the money laundering issues in a timely manner,” Christian Benedictsen-Nislev, a partner at NJORD, said in a statement. “This resulted in inflated share prices for the Danske Bank share.” 

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