Tag Archives: charged

Pedogate: Trump Campaign Chair Charged with Pedophilia & Sex Trafficking

In hypocrisy-laden bad news for Donald Trump, Alex Jones and their Hillary/Podesta bashers, a Trump campaign county chairman, school board member, ex-judge, Ku Klux Klan associate and Republican Tea Party activist was just charged with inducing a minor to engage in sex, human sex trafficking and providing alcohol to a minor. Before, during and after the arrest, local police found no pizza in any emails or crime scenes.

Ever since the Franklin Coverup and front page stories about “call boys” visiting the Regan-Bush White House, Republicans have dominated pedophilia-related cases nationwide and locally. This latest Kentucky case (below) fits the pattern.

Personal Experiences of the Author

A high-level U.S. Justice Department friend called me during the 1990s and asked that I “do something” about what he said was pedophilia and sex trafficking at a brownstone “on Taylor Street NE,” near his Washington DC family home, “because the government won’t do anything.” Even while later working briefly with ex-FBI Special Agent In Charge Ted Gunderson in the early 2000s, there was nothing effective that I could find to do.

In the 1970s, before my visit for a picnic with Abby Rockefeller (David’s daughter) on the Chase Family Farm, a local judge unsuccessfully attempted to spark my interest in 8mm pedophilia pornography (said to be seized in a pedophilia-related arrest). Possibly or probably since I showed no interest, no one associated with the Rockefellers and a prominent Congressional family invited me to return. No “Control File,” no business.


 

Trump Abrogates First Amendment and Sabotages VT Pedophilia Investigations

A Veterans Today investigation of circumstances surrounding Supreme Court justice Antonin Scalia’s murder strongly indicate that Scalia was murdered by Republicans involved the pedophilia blackmail rings for which Scalia was both involved and covering. See VT Exclusive: Largest Pedophile Ring in History, 70,000 Members, Heads of State, the Rats Scramble (“VT and Keshe take the lead in breaking the most insidious human trafficking gang on the planet”). Trump supporters groundlessly alleged Obama involvement in Scalia’s murder and blocked Obama’s Supreme Court nominee.

Veterans Today has been involved in investigating and exposing pedophilia blackmail rings and sex trafficking for longer than some of you have been eating pizza. Strangely enough, although the homepage of Veterans Today was online when looking for the VT story, clicking on a Google link to the VT article yielded an “Error 522,” saying that “Website is offline. No cached version of this page is available.”

President Donald J. Trump and his “Cyber Command” are still sabotaging Veterans Today. Abridging and abrogating the First Amendment by attacking and sabotaging the media and Veterans Today are “high crimes and misdemeanors” for which Congress can impeach and remove Trump.

So far baseless ‘Pizzagate’ fake news stories and a few high-level arrests in the UK and EU are finally increasing public pressure on U.S. local, state and national authorities to “do something” about pedophilia, sex trafficking and pedophilia blackmail rings. Real investigations by law enforcement will ensnare high-level Republicans and Democrats.

Appendix I

Former Trump Kentucky Campaign Chair Charged with Human Sex Trafficking of a Minor

by BOB BRIGHAM  22 APR 2017 AT 13:44 ET

A former judge now serving as a school board member in suburban Cincinnati has been charged with felony human trafficking of a minor, felony inducing a minor to engage in sex and a third count of giving alcohol to a minor.

The indictment was obtained by River City News publisher Michael Monks, who described Nolan as an, “outspoken and controversial” political figure.

 

Judge Tim Nolan of California, Kentucky represents District 5 on the Campbell County School Board. Yesterday afternoon he was lead into court wearing handcuffs as the “perp walk” was filmed by the local CBS station.

News anchor Cammy Dierking of WKRC described Judge Nolan as an, “outspoken supporter of the local Tea Party.”

The sex trafficking allegedly occurred in August 2016 — while Judge Nolan was serving as the chair of the Donald Trump campaign in Campbell County, KY. Trump beat Hillary Clinton 59% to 35% in the county while voters also elected Nolan.

In April of 2016, Nolan unsuccessfully attempted to remove Senate Majority Leader Mitch McConnell as a delegate to the RNC Convention.

Between fighting Senator McConnell in April and alleged crimes in August, Nolan was appointed by Governor Matt Bevin to the Kentucky Boxing and Wrestling Commission, but was removed only days later when a scandal erupted over a Ku Klux Klan photo posted to Nolan’s Facebook.

Unlike Republican Governor Bevin, the Trump Campaign chose not to drop Judge Nolan after the KKK scandal.

The alleged sex crimes were investigated by Campbell County Police, but Nolan was arraigned in front of Judge Elizabeth Chandler in Boone County District Court as Campbell County Circuit Court Clerk Taunya Nolan Jack is the daughter of the defendant — who served as a Campbell County Judge from 1978 to 1986.

Last November, Judge Nolan won a school board seat for a district with 5,000 students and 700 employees. Nolan beat an incumbent with 10 years of school board experience and 27 years experience as a teacher in the district by campaigning for so-called, “school choice vouchers” and for the elimination of all local property tax revenue for schools.

Rumors of the investigation surfaced in early April when Cincinnati Enquirer reporter Scott Wartman broke the news that Campbell County Police Chief Craig Sorrell had denied an open-records request that sought documents involving any investigation of Tim Nolan.

In announcing that the state’s Special Prosecution Division would be handling the case, the office of Attorney General Andy Beshear stated that, “a core mission of Beshear’s is to bring justice to the victims of rape, sexual assault and human trafficking.”

Nolan is being tracked by a court mandated ankle monitor after being released on $50,000 bond. A preliminary hearing has been scheduled for May 5 in Boone District Court.

Appendix II

By Gordon Duff, Senior Editor

Millions read the news today, the pedophile ring “busted” or the earlier article about how the FBI actually ran it for several weeks, expanding it, drawing in tens of thousands. Those who read it thought they knew, thought they were getting the story but as is so often the case, the truth goes so much further. 

When Veterans Today tied the murder of Supreme Court Justice Anthony Scalia to a White House blackmail plot and a strange tale involving the Keshe Foundation, it became clear that the highest and most powerful in Europe, the US and around the world, were tied together in a web of ritual child abuse on a massive scale. For the Scalia tale, refer to Appendix I.

Today’s story is one more aspect of this. VT’s involvement goes back to 1991 when key VT staffers worked for America’s intelligence community. A GOP high level staffer approached the CIA claiming that President George H.W. Bush was being blackmailed. It was said that the President was at a political fundraiser in St. Louis where, unknown to the President, top GOP campaign donors were having sex with young males, some of whom had been spirited away from Boys Town in Nebraska of Father Flanagan fame.

The rumors became more than rumors when Bush 43 took office and brought with him, according to a high level White House informant, a virtual army of Neocon pedophiles and “nancyboys” who set the tone for 8 years of crushed civil liberties. staged economic crashes and the dirtiest wars in America’s history.

The door didn’t open again until Iranian physicist, Mehran T. Keshe came to us with his own story. Invited to Belgium, sponsored by the Royal Family, Keshe was introduced to internet guru Sterling Allen and Belgian “fixer,” Dirk Lauressens. Within a short time, it became clear that he was there as a prisoner, not a guest, having fallen into a web of pedophiles that control public life in Belgium and the Netherlands, control corporations, courts, the police and do so rather publicly.

With Keshe’s story, we traced Sterling Allen, through his work with Belgium’s Royal Family, to his questioning by the FBI, to the seizure of his computers and eventually to his real task in life, webmaster for a massive pedophile ring that supplied children for the members of secret societies that control our daily lives through suppression of technology and the waging of endless war.

From NBC News:

Massive pedophile ring busted; 230 kids saved – US news – Crime & courts | NBC News

An Internet pedophile ring with up to 70,000 members — thought to be the world’s largest —has been uncovered by police, a security official said Wednesday.

The European police agency Europol said in a statement that “Operation Rescue” had identified 670 suspects and that 230 abused children in 30 countries had been taken to safety. More children are expected to be found, Europol said.

A pedophile ring, 70,000 strong, has been identified and hundreds arrested, an organization run on the internet, centered in the Free Energy Community, including websites run out of Paris, the Netherlands and Belgium.

What isn’t being told is that this same organization, also known as the Red Circle, runs through secret societies around the world:

  • Bilderberg
  • St. Hubertus
  • Federalist Society
  • Knights of Malta (Rome, not KMFAP in Budapest)
  • Council on Foreign Relations
  • Federal Reserve Bank
  • NATO
  • Royal Families of Belgium and Netherlands
  • SCOTUS (Supreme Court of the United States)

So much of this story revolves around Mehran T. Keshe, whose plasma related defense technologies, threaten the military balance of power, disabling American stealth drones and even leaving an AEGIS destroyer floating, dead in the water, in the Black Sea.

lido_1343

 

Anti-Keshe “troll” and convicted pedophile Sterling Allen, former Rense Radio host, now serving a life sentence, is said to have supplied the encryption keys that allowed the FBI to take over the Netherlands based site. From NBC:

“The website operated from a server based in the Netherlands and, at its height, boasted up to 70,000 members worldwide,” it added.

Police infiltrated site
The Europol statement said U.K. and Australian police infiltrated the site to identify the members who posed the greatest danger to children. Police also sometimes posed as children online as part of the investigation.

Law enforcement authorities from 13 countries, including the United States, Australia, Canada, Italy, Spain and the U.K., were involved in the case, Europol said.

The statement said Europol analysts had cracked the security features of a key computer server at the center of the network which uncovered the identities of suspected child sex offenders.

And, after his arrest, the forum’s Dutch administrator helped police break encryption measures that shielded users’ identities, allowing police to begin their covert investigations.

“Europol subsequently issued over 4,000 intelligence reports to police authorities in over 30 countries in Europe and elsewhere, which has led to the arrests of suspects and the safeguarding of children,” Europol said.”

In September 2015, Iranian physicist Mehran T. Keshe met with the FBI in Rome, a meeting set up by VT. From a source at Europol:

It was this from Veterans Today that helped push this forward: “It was Keshe’s information given to the FBI in Italy that led to the seizure of Sterling Allan’s computer back in January of 2016, which led to the Obama White House getting files tying Justice “Tony” Scalia to a child sex ring and demonstrating that it was Scalia that had protected Allan. With Justice Scalia exposed to Obama blackmail, his own friends smothered him to death with a pillow, and walked past police, while the world moved on, no autopsy, no investigation.”
That explains why Hollande (President of the French Republic) was scared he is linked to child abuse in France, via Belgium as well. Abdessalem (Foreign Minister of Tunisia) was traded by the FBI so Hollande can stay in power, sign the tafta and much more allow American military presence in France, which is now turning against him… That explains why the US military unit near Milan was behind us to see what we had in stock against Bibi (Netanyahu) and Hollande… now that they have Hollande, they are pushing him to the edge, using pressure on Sarkozy, right hand of Bibi, they moved in Tripoli, blackmailing Roma.
Have you seen this man (Paris, France)?

Have you seen this man (Paris, France)?

Thus, what begins as a hundred arrests, when you peel the levels, involves the French elections and even the recent Bataclan attack in Paris now tied to, if you can imagine it, a police informant smuggled into France through Italy by Tunisia, who out of curiosity runs an anti-Keshe website.

>

Scalia funeral

…by Gordon Duff, Senior Editor and Ian Greenhalgh

[ Editorial note: Revelations on the Allan case, which led to Scalia now lead into the entire Koch network, including the Federalist Society, said to be operating not simply in law schools but America’s high schools as well, and into the Heritage Foundation.

We don’t know when it began, maybe at the Presidio under Michael Aquino and the Temple of Set or before. We do know it has victimized thousands of children around the world, not only in America but channeling children through Belgium and the Netherlands into sexual slavery and death.

What is it that makes the powerful desire what is so hurtful and obscene? When we ignored the Franklin Coverup, we opened ourselves to this… Gordon Duff ]

___________

Scalia – What really happened?

Justice Antonin Scalia was surprised when he was ordered to the White House. This was not a man you gave orders to, especially not President Obama. It was Justice Antonin Scalia who vacated the long sacrosanct immunity from civil lawsuits, opening the door for a weakened presidency.

Sources say that Scalia was the single actor behind the impeachment of Bill Clinton. President Obama was aware of this and had ordered the FBI to set out traps for Scalia. We will now outline the downfall of Antonin Scalia. Yes, this is a story of secret societies, operating worldwide and ritual Satanic child abuse that permeates Washington.

https://youtu.be/Ia6bU-Z9SbA

When Scalia left the White House after a meeting with the president just before flying to Texas, the manila envelope he was carrying had printouts from a computer seized by FBI Special Agent Jeff Ross of the Salt Lake City, Utah field office, or so informants tell us.

Scalia left the White House carrying “slam dunk proof” that would lead to the arrest, conviction and, of course, impeachment of a seated Supreme Court Justice, files that contained names of victims and details on sex acts, preferred “types” along with dates and places. All of this was on the seized computer and these files went “up hill” from the FBI to the Department of Justice and directly over to the White House.

There, political advisors leapt on them, seeing a chance to leverage a justice and, in this case, and this is very important, bring down Scalia in such a way that conservatives would be forced to accept virtually any Obama nomination.

When Scalia arrived in Houston and chartered a plane after ditching his US Marshall protection detail, Scalia and his companion, C. Allen Foster. Foster heads the Order of Hubertus and is co-owner with John Poindexter of the Cibolo Creek Ranch, 25,000 plus acres free for anyone to use, according to John Poindexter, “free of charge,” so long as they are a supreme court justice, “A list” celebrity like Mick Jagger or billionaires, others need not apply.

St. Hubertus ritual mask from Scalia death scene, photo credit: InfoWars.com

St. Hubertus ritual mask taken from Cibolo Creek ranch (credit: InfoWars.com)

The crux of the story is how they got Scalia. According to sources, Scalia had been providing protection for an international pedophile ring and was murdered by “friends” who he had informed of the nature of his visit with Obama and the doom it signaled for those around Scalia, prosecution, ruin and Citizens United reversed.

The mechanism Scalia used to provide this protection was the Federalist Society which chooses the judges throughout the US judiciary system so should any unfortunate pedophile find himself in court, the judge was under Scalia’s control, thus making a successful prosecution difficult to achieve.

The Federalist Society grooms and recruits candidates to become judges at a young age – college age kids; they specifically seek out suitable candidates who have certain moral ambiguities that can be exploited.

Thus a stranglehold is placed on the judicial system of the United States by a group which serves the interests of big business – corrupt corporations, big pharma, the oil and coal barons; this is how their interests are, time and again, placed ahead of those of we, the people with the result that our environment and our bodies are polluted by the products of these corporations, be it poisons like aspartame and GMO crops in our food, toxins in our ground water (see Flint, MI) or just plain old exploitation of poor people such as the coal miners of West Virginia and Kentucky.

Scalia met with the Order of Saint Hubertus, the patron saint of million dollar dude ranch hunting. As of yet, no one has identified who was there, it seems that Supreme Court justices are found all the time with pillows over their faces and nobody asks a thing, but this was Texas and they make their own rules down there.

We remember former FBI director and founder, J Edgar Hoover, the man who said ritual satanic child abuse was a conspiracy theory. He is also the man who said the mafia didn’t exist. 

Scalia’s talk in Texas was said to have gone like this: “They have us, we are all going down unless we can give them what they want and they are holding all the cards, they have everything.” There was no negotiation with the White House, instead Scalia got, we are told and multiple sources confirm, a pillow over the face and a heroic funeral, one that President Obama refused to attend. Now we know why.

For a seated president to not attend the funeral of a pedophile is unthinkable.

__________

The computer itself belonged to a Sterling David Allen, arrested and charged with child rape and sodomy by the FBI after an investigation that began with a meeting in Rome, Italy. The FBI had known about Allen for some time, had wanted to arrest him since 2014 but had been blocked, they just didn’t know why or who was behind it, not until Justice Scalia died. Within 9 days, Allen was jailed, and the evidence he held began to yield gold.

Allen is being held on these charges with bail set at $250,000.

We were shown an email from Allen where he tells of his January 15, 2016 meeting with Agent Ross at which time his computers were seized by the FBI. What we are told was on Allen’s computer and what Allen told agents is astounding. Allen confessed, we are told, not only to his own sex crimes but to being recruited by a powerful international organization that provided him broad protection from prosecution.

From Ian Greenhalgh:

It is very sick, but if you really want to watch and hear the ramblings of a mad man just watch this video where Sterling D. Allan says he is GOD in the flesh, admits to being a paedophile, admits he has committed sexual abuse with an underage child, and says that he is waiting to be arrested. Mr. Allan claims he chose this life before coming to Earth to be a “scapegoat” which of course is all foretold in his insane “alphabetics.”

We are told that Allen became increasingly unstable as his own feelings of guilt and his own public confessions of child sex crimes were inadequate to bring about his own arrest, an arrest he openly asked for time and time again.

Allen, who using his computer skills helped fellow pedophiles scour the internet for vulnerable children.

High level sources confirm that Supreme Court Justice Antonin Scalia was murdered, that in itself is neither an original claim nor beyond the realm of likelihood based on circumstances allegedly tied to his death. By that, we are speaking of the “pillow over the head” and allegations of a “cover-up autopsy,” well outside legal requirements for someone of Scalia’s position.

Sources in the White House confirm that immediately prior to his flight to Texas, ostensibly for a hunting trip with 35 “close friends,” many of whom are members of the highly secret Order of Saint Hubertus. As is being reported, initially in the Washington Post with broader allegations made on the InfoWars website, tying the Hubertus Order to Bohemian Grove antics, long subject to speculation in the alternative media.

We became aware of the case in August 2015 when we were shown correspondence between Allen and representatives of the Keshe Foundation. Allen ran several popular websites on alternative energy and was a popular speaker, often appearing on the Coast to Coast radio show with Detroit native, George Noory.

Increasingly it became obvious that Allen had been using these venues for sexual trafficking of children. It wasn’t hard to figure out, he did it openly spoke of it constantly (as seen in the YouTube above) and lived as though he were above the law. Over the next few months, particularly when confronted by Iranian born physicist MT Keshe, who ordered Allen and those around him banned from all Keshe forums, Allen openly flaunted his criminal activities.

What made this particularly insidious is that it was obvious not only that Allen was not acting alone but that he had broad support not only in his home state of Utah, where he was able to avoid prosecution, but in Belgium as well. There, Allen and associates Hans Bracquene, Dirk Laureyssens and Ad Van den Elshout moved against the Keshe group, securing against Keshe’s wishes technologies with defense related applications and passing them on to MI 5 in Britain.

When Keshe moved against this group and tried to secure his patents, he found himself being chased down the highway, shots fired, his car run off the road. Police arrested and soon “misplaced” the culprits, and soon thereafter, representatives of Belgium’s “royals” told Keshe to leave Belgium or be buried there.

On the European end of the FBI investigation, the trail, all of which is easily followed by the “breadcrumbs” Sterling David Allen has left, leads to the highest and most powerful of the scientific communities where blackmail, kidnapping and torture, threats against families and in particular, threats against children, have placed members of secret societies in positions of power at universities, think tanks, police and counter-terrorism agencies and even the European Space
Agency.

More to come…


Mexican Attorney General Charged With Drug Trafficking at San Diego Border

An attorney general from a Mexican state was arrested at the U.S.-Mexico border south of San Diego for allegedly smuggling and trying to distribute drugs over a period of years, according to charges filed by the state of New York in early March.

The State of New York filed drug trafficking charges against Edgar Veytia, Nayarit’s state prosecutor, on March 2, which led to his arrest on Monday, according to the indictment and authorities.

Veytia was taken into custody Monday at the Cross Border Xpress bridge, which links Tijuana Airport to the United States, U.S. Customs and Border Protection representative Ralph Desio confirmed.

Veytia, also known as “Diablo,” “Eepp,” and “Lic Veytia,” was indicted on charges including international conspiracy to illegally import, manufacture and distribute heroin, methamphetamine, marijuana and cocaine.

A lawyer for Veytia told NBC News he was just learning about the case and couldn’t comment. Law enforcement sources told NBC News that Veytia was on their radar for some time and he was arrested as soon as possible.


Veytia allegedly smuggled the drugs between January 2013 and February 2017. The indictment, filed in the U.S. District Court of Eastern New York, links Veytia with at least one kilogram of heroin, five kilograms of cocaine, 500 grams of methamphetamine and 1,000 kilograms of marijuana smuggled into the country.

During that same, Veytia allegedly knew of and would attempt illegal importation of those drugs outside the U.S. as well.

Federal prison records show Veytia remains in a San Diego lock-up, with a hearing scheduled Aprill 11 for removal to New York.

If convicted, the U.S. would seek at least $250 million from Veytia in property linked to drug manufacturing and distributing, according to the indictment.

 


Deutsche Bank Charged By Italy For Market Manipulation, Creating False Accounts

For Deutsche Bank, when it rains, it pours, even when everyone tries to come to its rescue.

One day after its stock soared from all time lows, following what so far appears to have been a fabricated report sourced by AFP which relied on Twitter as a source that the DOJ would reduce its RMBS settlement amount with Deutsche Bank from $14 billion to below $6 billion (and which neither the DOJ nor Deutsche Bank have confirmed for obvious reasons), moments ago Bloomberg reported that six current and former managers of Deutsche Bank, including Michele Faissola, Michele Foresti and Ivor Dunbar, were charged in Milan for colluding to falsify the accounts of Italy’s third-biggest bank, Monte Paschi (which itself is so insolvent it is currently scrambling to finalize a private sector bailout) and manipulate the market. Two former executives at Nomura Holdings Inc. and five at Banca Monte dei Paschi di Siena were also charged.

The news comes in a time of heated relations between Italy and Germany, when the former has been pushing to get German “permission” for a state bailout of its insolvent banks only to be met by stiff resistance by the latter as Merkel and Schauble have demanded a bail-in of private investors instead, even as – ironically – it has been Deutsche Bank’s woeful financial state that has been in the Wall Street spotlight this past week.

The charges culminate a three-year investigation by prosecutors that showed Monte Paschi used the transactions to hide losses, leading to a misrepresentation of its accounts between 2008 and 2012. The deals came to light in January 2013, when Bloomberg News reported that Monte Paschi used derivatives to hide losses.

As BBG adds, “the charges deal another blow to Deutsche Bank, which is seeking to reassure investors and clients that it will be able to withstand pending U.S. penalties over the bank’s sale of mortgage-backed securities and its dealings with some Russian clients.”


In what appears to be another case of Wells Fargo-esque scapegoating of junior employees to keep senior execs off the hook, just weeks after Milan prosecutors shelved a probe against Monte Paschi’s former chairman and CEO for alleged market manipulation and false accounting as it “risked undermining investor sentiment”, a judge approved a request by Milan prosecutors to try the bankers on charges involving two separate derivative transactions arranged with Nomura and Deutsche Bank, said a lawyer involved in the case who was in the courtroom Saturday as the decision was announced.

DB’s Faissola, whose roles included overseeing rates and commodities, was put in charge of Deutsche Bank’s combined asset and wealth management division in 2012 when Anshu Jain and Juergen Fitschen took over as co-chief executive officers of the Frankfurt-based lender. Deutsche Bank last October said Faissola would leave after a transition period, and John Cryan has replaced Jain and Fitschen as CEO.

Just as importantly, the firms are also named as defendants in the indictment, as the Italian law provides for a direct liability of legal entities for certain crimes committed by their representatives. Which means even more legal charges, fines and settlements are looking likely in DB’s future.

A trial is scheduled for Dec. 15.

Both DB and Nomura have denied any guilt:  “We will put forward our defense in court and have no further comment to make today,” Deutsche Bank said in an e-mailed statement. “I’m convinced that the debate will definitely show that Nomura has no responsibility over Monte Paschi’s false accounting,” said Guido Alleva, a lawyer for Nomura. A spokeswoman for the Japanese bank and a Paschi spokesman declined to comment.

As Bloomberg adds, Monte Paschi’s former executives Giuseppe Mussari, Antonio Vigni and Gianluca Baldassarri, and Nomura’s former bankers Sadeq Sayeed and Raffaele Ricci also will face trial for allegedly obstructing regulators after the investigation revealed that the 2009 deal, dubbed Alexandria, was designed to disguise losses from a previous investment.

The basis for the legal action are two deals conducted by Deutsche Bank and Nomura which took place at the height of the financial crisis, meant to mask Monte Paschi’s financial woes. Prosecutors have been reconstructing how Monte Paschi’s former managers misrepresented the lender’s finances in the years through the two deals signed with Deutsche Bank in 2008 and Nomura in 2009.  The investigation revealed Monte Paschi arranged the transactions to hide billions in losses that led to false accounting between 2008 and 2012, according to a prosecutors’ statement released Jan. 14, when they completed the investigation.

The fraud first came to light in January 2013, when Bloomberg News reported that Monte Paschi used the transaction with Deutsche Bank, dubbed Santorini, to mask losses from an earlier derivative contract. The world’s oldest bank restated its accounts and has since been forced to tap investors to replenish capital amid a slump in its shares. It’s now attempting to convince investors to buy billions of bad loans before a fresh stock sale.

Zero Hedge previously posted an in depth look of the incestuous relationship between Deutsche Bank and Monte Paschi represented by the”Santorini” deal, which we repost below for those unfamiliar with the nuances of the deal which will likely see renewed media interest in the coming days.

* * *

The Deutsche Bank, Monte Paschi Cover-Up: Tier 1 Capital and an Equity Swap

At Deutsche Bank, the job title “risk manager” might be more appropriately characterized as “campaign manager.” That is, Deutsche Bank is no more concerned with the active mitigation of risk than the unscrupulous politician is with actively avoiding extra marital affairs. Like campaign mangers then, risk managers at Deutsche Bank must accept the fact that occasionally (or perhaps quite often) messes will be made and spin campaigns will need to be devised and deployed in order to keep public opinion from turning sour and in order to keep the few regulators who aren’t on the payroll from stirring up any trouble. In short, risk management at the firm seems to be more reactive than proactive and the combination of pliable mathematical models, questionable ethical standards, and a clueless public makes it possible for the firm’s quant spin doctors to disappear vast amounts of risk from the books without anyone getting wise.

Apparently however, even the mainstream media has gotten wise to the act. Recently, CNBC’s John Carney and DealBreaker’s Matt Levine observed that Deutsche Bank was able to report a higher Tier 1 capital ratio in its most recent quarter not by reducing the loans on its books or by increasing its earnings, but by changing the way it calculates its risk weighted assets. In other words, it manipulated its mathematical models to achieve more favorable results.

It is ironic that these commentators should be the ones calling out Deutsche Bank for crimes against mathematics. After all, a little over a month ago, these same two journalists (and many of their peers) trivialized the whistleblower claim filed against Deutsche Bank by a Mr. Eric Ben-Artzi, a PhD mathematician from the most prestigious school of applied mathematics in the country, NYU’s Courant Institute.

In any case, on January 17, Bloomberg reported that “Deutsche Bank designed a derivative for Banca Monte dei Paschi di Siena SpA at the height of the financial crisis that obscured losses at the world’s oldest lender before it sought a taxpayer bailout.” The Bloomberg story set-off a wave of investigations which ultimately revealed that the world’s oldest bank made a series of bad derivatives bets that will ultimately cost it three quarters of a billion euros. The Bank of Italy has since approved a 3.9 billion euro taxpayer-sponsored bailout. The story has taken several decisive (albeit hilarious) turns for worst over the past two weeks and the whole thing now reads like a lost chapter of The Da Vinci Code, complete with treacherous characters, scandalous deal-making, and a secret contract locked away “in a concealed safe in a 14th century Tuscan palace.”

As intriguing as all of that is, it is the Deutsche Bank connection which is of particular interest. The firm’s role in helping Monet Paschi conceal losses speaks to the depravity of Deutsche’s corporate culture and to the firm’s willingness to share its expertise in the art of obfuscation with its clients. Here is Bloomberg’s description of what happened:

Monte Paschi was facing a 367 million-euro loss on a… Deutsche Bank derivative linked to its stake in Intesa Sanpaolo SpA (ISP), Italy’s second-biggest bank, according to two documents drafted by executives at the German lender in November and December 2008…
Monte Paschi, which originally took the stake in one of Intesa’s predecessor companies more than a decade earlier, had entered into a swap with the German bank in 2002 to raise cash from the holding to bolster capital while retaining exposure to Intesa’s stock-price moves, the documents show.

Intesa shares fell more than 50 percent in the 11 months through November 2008, and the decline would have forced Monte Paschi to post a fair-value loss on the swap at the end of the quarter, threatening the bank’s capital and earnings, the derivatives specialists who examined the documents said.

“Monte Paschi was facing a loss on its equity position and may have needed to find a way around it,” Satyajit Das, a former Citigroup Inc. (C) banker and author of half a dozen books on risk management and derivatives, said after reviewing the files.

This is the first part of what would eventually become a multi-legged trade that spanned the better part of a decade. Although the mainstream media has done a decent job of describing the mechanics of the transaction, I wanted to know the details, so I contacted Bloomberg to see if they would be interested in sharing the 70 some odd pages of documents on which they based their original story. Not surprisingly, they informed me that they are not currently able to share the evidence. While they promised that I would be the first to know if the situation changed, I thought I might take a stab at explaining, in detail, what exactly went on between Deutsche and Monte Paschi in lieu of Bloomberg’s top-secret document stash.

I cannot, of course, be sure that this is entirely accurate without access to primary sources, but this should serve as a decent outline for those interested in learning how the largest bank in the world conspired with the oldest bank in the world to effectively hide hundreds of millions in losses from shareholders.

For our purposes, the story begins on page 310 of Monte Paschi’s 2002 annual report. Under “Acquisitions, Incorporations, and Sales,” the following passage appears:

Sale to Deutsche Bank AG London Branch of a 4.99-percent holding in San Paolo-IMI S.p.A. Along with this sale, the Bank invested EUR 329 million to purchase a 49-percent interest in the newly incorporated Santorini Investment Ltd. Partnership, a Scottish company that is 51- percent owned by Deutsche Bank AG. The aggregate price of the sale was EUR 785.4 million; the difference (EUR 425.3 million) between the sale price and the carrying value (EUR 1,210.7 million) was charged to the revaluation reserve set up in accordance with Law 342/2000. The residual amount was allocated to shareholders’ equity through a bonus share capital increase authorized by a resolution of the extraordinary shareholders’ meeting of 30 November 2002. (emphasis mine)

This is the genesis of the Deutsche Bank deal and while it may sound convoluted, the bank’s motives seem relatively clear in retrospect. First, consider the effect the transaction above had on Monte Paschi’s statement of shareholders’ equity:

First, the bank had to account for the 425 million-euro difference between the carrying value of its stake in San Paolo bank and the amount Deutsche Bank paid for those shares. This was effectively a loss, and as it turned out, Monte Paschi had held what it called an “extraordinary meeting” on November 30 of 2002 to get shareholder approval to use its entire 715 million-euro revaluation reserve (green arrow above) for an increase in the par value of the ordinary and savings shares and to absorb the loss on the sale of the San Paolo stake to Deutsche Bank (this is outlined on page 383 of the 2002 annual report).

Because revaluation reserves didn’t generally count towards Tier 1 capital, the bank was able to absorb the loss on the sale without affecting the area it was really concerned about: core capital. As an added benefit, Monte Paschi was able to use the remainder of the revaluation reserve (the 209 million left over after it absorbed the loss on the sale of the shares) to raise the par value of its own shares, resulting in an increase in its share capital (yellow arrow above). This of course, led to a concurrent increase in the bank’s Tier 1 capital ratio. Effectively then, Monte Paschi turned a 425 million euro loss on the sale of an equity stake into a .2% increase in its Tier 1 capital ratio (there were other components which contributed to the increase, but the point stands).  This is likely what Bloomberg was referring to when it said Monte Paschi was seeking “to bolster capital” by using its equity stake in San Paolo.

As noted above, Monte Paschi and Deutsche set up “Santorini Investment Ltd” after the completion of the equity sale. This is where the “equity swap” referenced by Bloomberg comes into play. From what I can tell, this was some derivation of a “total return equity swap.” Here, the deal began with the sale of the San Paolo stake to Deutsche Bank. “Santorini Investment Ltd” (the ”partnership” Deutsche and Monte Paschi set up after the sale) was essentially a special purpose vehicle (SPV) through which the swap was effectuated.

Santorini was majority owned (51%) by Deutsche Bank – Monte Paschi controlled 49%. A portion of the cash from the original sale of the San Paolo stake to Deutsche was effectively used to finance Monte Paschi’s stake in Santorini. Through the SPV, Monte Paschi was able to retain exposure to the share price fluctuations of its San Paolo stake. Typically in such a deal, there is either a floating rate or a fixed rate of interest paid over the life of the swap to the entity to which the shares were sold (in this case Deutsche) based on the notional amount of the shares traded (so 785 million euros here). When the swap matures, the original seller of the shares (Monte Paschi here) will receive the difference between the price of the shares when the swap was originated and the price of the shares at maturity.

Obviously, if the shares rise over time the original seller makes a profit on the swap (minus any interest payments made along the way). Of course the stock could go up or down over the life of the transaction so there is a very real possibility that the original seller of the shares will have to make a payment at maturity in addition to the interest payments made along the way. Note also that if the stock drops over the course of the deal, the original seller may be forced to post collateral to the buyer of the shares. Through Santorini then, Monte Paschi appears to have entered into a total return equity swap with Deutsche Bank referencing the 4.99% stake in San Paolo. Monte Paschi paid Deutsche interest on the deal and was on the hook for margin calls in the event the value of San Paolo’s shares dropped. The following graphic is a simplified diagram of the swap based on an unrelated total return swap diagram originally posted on Sober Look:

It is important to remember that one of the pitfalls of entering into such an agreement is that the seller of the shares may initially have to recognize a capital loss on the sale.  By using its revaluation reserve, Monte Paschi was able not only to effectively avoid this for the purposes of core capital, but was in fact able to boost its Tier 1 capital ratio while retaining exposure to the share price movements of the sold San Paolo stake through the swap deal with Deutsche.

The original term of the deal was 3 years but according to Monte Paschi’s 2004 annual report, the swap was extended to 2009:

“…with reference to the investments held in Santorini Investment Limited Partnership, the capital loss, due to the compliance with several accounting principle, is not deemed to be permanent in view of the assets underlying the financial contracts, which anyway increased in value in the last period; moreover, the contract was renewed for further 4 years (new expiry: 31 May 2009) while keeping the advance redemption right.”

On January 1 2007, San Paolo merged with Banka Intesa hence the following passage from the Bloomberg piece:

“Monte Paschi,… originally took the stake in one of Intesa’s predecessor companies… [and] entered into a swap with the [Deutsche] in 2002 to raise cash from [that]…while retaining exposure to Intesa’s stock-price moves.”

It appears then, that Monte Paschi effectively gained exposure to Intesa’s stock by default. Whatever the case, the collapse in the price of Intesa’s shares in 2008 resulted in a 367 million euro impairment to Monte Paschi’s Santorini investment. Desperate, the bank asked Deutsche Bank what could be done. Ultimately, it was determined that Deutsche and Monte Paschi would restructure Santorini and devise a replacement swap that would allow Monte Paschi to hide the losses on its original position.

The replacement swap will be the topic of a follow up piece. For now, consider that Deutsche Bank and Monte Paschi were able, via a stock purchase and a subsequent equity swap, to boost Monte Paschi’s 2002 Tier 1 capital (even though the stock purchase resulted in a nearly half billion euro capital loss for Monte Paschi), while ensuring that Monte Paschi retained exposure to the underlying shares. At the time, it undoubtedly seemed like a good idea – perhaps even a win-win situation. Of course, the near collapse of the worldwide financial system in 2008 would turn the deal into a nightmare for Monte Paschi, but as the Italian bank learned, when Deutsche Bank’s risk management department is involved, “losses” are just an illusion.