Deutsche Bank Fires Two in Spying Probe

By SARA SCHAEFER MUñOZ and DAVID CRAWFORD

Germany's Deutsche Bank AG has dismissed two top executives following an internal investigation into whether the company conducted surveillance on a board member and others, people familiar with the matter said. The case is raising concerns in a society still coming to terms with East Germany's legacy of spying on citizens.

The dismissals come as prosecutors in Frankfurt have opened a preliminary probe into whether Deutsche Bank or its senior officials may have violated a set of civil and criminal laws that protect individual privacy by spying on an activist shareholder. Germany's financial regulators and the state's Data Protection Authority are also examining the incidents.

The dismissals are fallout from an internal probe at Deutsche Bank stemming from incidents the bank disclosed in May, after discovering activities involving the bank's corporate security department. The investigation, conducted by law firm Cleary Gottlieb Steen & Hamilton, has focused on four incidents, stretching from 2001 to 2007, in which the bank contracted with outside firms that monitored people affiliated with the firm, according to a person familiar with the matter.

Among the targets of the surveillance, this person said, were Gerald Herrmann, a former member of the bank's supervisory board suspected by the bank of leaking information; Michael Bohndorf, an activist shareholder who has been critical of the bank; German media mogul Leo Kirch; and Hermann-Josef Lamberti, Deutsche Bank's chief operating officer.

In one incident, the bank used private detectives to determine whether there was a link between Messrs. Bohndorf and Kirch, according to a person familiar with the matter. Mr. Bohndorf is an activist shareholder who resides on the Spanish island of Ibiza and who had been critical of the bank, said this person. Mr. Bohndorf sometimes aired his criticisms in public forums such as shareholder meetings.

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A red traffic light can be seen in front of the facade of the headquarters of Deutsche Bank in Frankfurt

Mr. Kirch has battled Deutsche Bank in German courts over his allegations that comments by a bank executive led to the collapse of some of Mr. Kirch's companies.

The bank is awaiting the final draft of the Cleary report on the matter, which should be submitted in the next two weeks. Drafts of the report have been given to the board.

Rafael Schenz, the company's head of German corporate security, has been dismissed. Mr. Schenz had been suspended in May pending completion of the investigation into whether private-detective firms hired by the bank violated privacy laws.

Wolfram Schmitt, the bank's head of investor relations, had also been suspended and now has been dismissed, apparently for his involvement in sharing shareholder information with the detectives, the person familiar with the matter said. The dismissals were first reported by German magazine Der Spiegel.

Messrs. Schenz and Schmitt couldn't be reached for comment.

"We will comment on the results of the investigation launched by the bank and any subsequent staff and organizational changes once the final report on the investigation is concluded, and continue to cooperate with the authorities who we informed about the matter," said a spokesman for Deutsche Bank.

A Deutsche Bank spokesman said that the surveillance incidents were all isolated, not a systemic program hatched to collect information about executives or corporate enemies. A spokesman also said that the incidents don't involve client data.

So far, the incidents at Deutsche Bank appear to be more limited in scope -- and more random in what the company went after -- than some other recent corporate spying scandals, most notably the 2006 episode in which Hewlett-Packard Co. was caught extensively using tawdry tactics to trace leaks from its board. In that case, the company used investigators who deployed false pretenses to obtain private phone records and other data about board members, reporters and employees. That situation resulted in the resignation of Hewlett-Packard's chairwoman, Patricia Dunn, as well as a board member and several executives.

The incidents at Deutsche Bank have made waves in Germany, where the protection of privacy is sacrosanct following the legacy of the East German secret police, which routinely spied on citizens. With the new probes by German prosecutors and financial regulators, dismissing executives may not resolve the matter for Deutsche Bank.

Officials at the state of Hesse privacy office referred a large amount of evidence on the surveillance operations to state prosecutors after determining that state and federal privacy laws may have been violated, an official who is familiar with the investigation said. Due to the large amount of evidence, the preliminary investigation will take several weeks before a decision is made on whether to open a formal investigation.

German privacy officials at the state and federal level routinely investigate reports of privacy violations by firms and government agencies. The privacy agencies may order regulatory fixes if the processing of information is faulty, but must refer the cases to prosecutors if violations of criminal law is suspected.

Deutsche Bank disclosed the incidents in the wake of other corporate snooping scandals in Germany at companies such as Deutsche Telekom AG and Deutsche Bahn. Last year, Deutsche Telekom admitted to tracking thousands of telephone calls of its advisory board, using outside investigators in an effort to track leaks to the media about the company's internal affairs.

In May, Deutsche Bank issued a statement saying the bank's executive management had learned about "possible violations of the bank's internal procedures or legal requirements in connection with activities involving the bank's corporate security department."

The bank at the time said that Chief Executive Josef Ackermann, in coordination with the audit committee of the supervisory board, had retained a leading law firm to conduct an independent investigation.

The Deutsche Bank review is looking at four separate incidents, which took place in 2001, 2006 and 2007, according to a person familiar with the matter.

For the 2001 incident, investigators looked at Mr. Herrmann, a former member of the bank's supervisory board and a labor representative who was suspected by the bank of leaking earnings information to the press, said a person close to the matter. The bank says it has apologized to Mr. Herrmann for scrutinizing him.

The 2006 and 2007 incidents involved the other targets. In the case of Mr. Lamberti, the company allegedly hired private detectives to determine whether the COO had adequate security measures in place. For example, the detectives tried -- unsuccessfully -- to plant a GPS device on Mr. Lamberti's car. They also sent flowers to his home with a dead microphone hidden in the arrangement to see if he would notice it.

Write to Sara Schaefer Muñoz at sara.schaefer@wsj.com and David Crawford at david.crawford@wsj.com