Prosecutor Investigation

Sunk by a Trade

Kengeter, CEO of Deutsche Boerse attends the initial public offering of Scale at the Frankfurt stock exchange in Frankfurt,
Carsten Kengeter still has a lot of explaining to do. Source: Reuters

When Carsten Kengeter became a key player in German finance in June 2015, his new employer, Deutsche Börse, played up the “international perspectives” its new chief executive could realize for the operator of the country’s stock and derivatives exchanges. After two decades in London and Hong Kong, Mr. Kengeter was obviously meant to bring some global swagger to Eschborn, the grey suburb of Frankfurt that is home to Deutsche Börse.

Two years later, the wisdom of this move is under growing scrutiny. A failed merger with the London Stock Exchange (LSE) aside, the boss of the stock exchange operator is buffeted by the aftershocks of a personal stock trade that might simply have been poorly timed or, as Frankfurt prosecutors say, possibly illegal insider trading.

Either way, Deutsche Börse looks less a paragon of global savvy than of provincial ineptitude. Can Mr. Kengeter stay on?

“Everyone is looking at the executive team the way a rabbit eyes a snake.”

Deutsche Börse employee

On 14 December 2015, Mr. Kengeter spent €4.5 million on 60,000 shares in Deutsche Börse as part of a compensation program approved by his bosses on the supervisory board, led by Chairman Joachim Faber; on 23 February 2016, Deutsche Börse announced it was exploring a merger – later abandoned – with the LSE; on 1 February 2017 prosecutors went public with their suspicions and searched Mr Kengeter’s office and his Frankfurt home.

Both Mr. Kengeter and Deutsche Börse have always denied any wrongdoing, indeed Mr Kengeter himself openly talked about the stock deal in an interview in January 2016. But the issue cast a pall on talks with the LSE (they mainly foundered this spring on post-Brexit mistrust about whether Frankfurt or London stood to lose more), and on Mr Kengeter himself – the boss of a stock-exchange operator under investigation for insider trading.

So eager was Deutsche Börse finally to dispel this cloud hanging over it, that it on Tuesday announced prosecutors had offered to drop their investigation in return for cash payments from Deutsche Börse totaling €10.5 million. In its public disclosure, the company suggested authorities had put this in writing. But prosecutors demurred – yes, there was a letter (with the proposal of a cash payment), but no formal offer to end the inquiry against Mr. Kengeter.

Things quickly got worse. The federal financial supervisory agency, BaFin, shortly afterwards announced it was examining whether Deutsche Börse’s disclosure broke market rules by being willfully misleading. Then the state of Hesse’s supervisory agency, which oversees the Frankfurt Stock Exchange, said it planned to examine the personal integrity of Deutsche Börse’s top executives. “The review will encompass all individuals who may be responsible for possible violations of the law,” the state economics ministry said in a terse statement.

The latter move, in particular, could prove explosive. If they don’t like what they discover, state regulators could demand the replacement of Mr. Kengeter and other top executives – and Deutsche Börse’s relationship with the state government in Wiesbaden is still tense following the company’s pursuit of the LSE.

Mr. Kengeter’s employees are increasingly afraid for the worst. “Everyone is looking at the executive team the way a rabbit eyes a snake,” said one.

“If the accusations are true, it isn't right that the company is paying up, while Mr. Kengeter does not.”


The unexpected aftershocks of Mr. Kengeter’s December 2015 stock trade are also being increasingly criticized in Frankfurt. So far, the Deutsche Börse boss – who likes to spend his free time competing in extreme ski races and running mountain marathons – claimed to be undaunted by the insider-trading allegations. “Standing still is not an option,” he said in March. But after the week’s debacle, he now risks losing the support of a powerful group that has steadfastly supported his strategic course for Deutsche Börse – its shareholders.

Despite the failed merger with the LSE, Deutsche Börse’s share price has risen by more than a quarter since Mr. Kengeter took charge; he has deftly used dividend increases and a buyback program to keep shareholders on side. But the week’s embarrassments are testing their patience. “The most recent events do not place Deutsche Börse in a strong starting position when it comes to extending Mr. Kengeter’s contract,” said one major investor. Another said the scandal needed be brought to an end quickly: “Deutsche Börse needs a good reputation.”

Some think it might be too late for that. “Deutsche Börse has a special responsibility to the shareholder culture,” said Klaus Nieding of the German Shareholders’ Association. It was unacceptable for the Deutsche Börse CEO to buy shares during sensitive periods. Mr. Faber, Deutsche Börse’s chairman, is also under fire. “The supervisory board should not structure a stock purchase program in such a way that it can lead to suspicions of insider activity,” a fund manager said. “If Mr. Faber continues in this vein, he won’t be doing himself any favors.”

There is an explanation doing the rounds in Eschborn that suggests Messrs. Faber and Kengeter had no intention to deceive shareholders on Tuesday. People briefed on the matter said Deutsche Börse’s attorneys had pressured it to include in its announcement not only the information from the prosecutor’s letter about the proposed fine against the company, but also from private talks between investigators and lawyers about the possibility of ending the investigation against Mr. Kengeter. According to associates of Deutsche Börse’s chairman, Mr. Faber still hopes to conclude the €10.5 million deal in Mr. Kengeter’s favor.

But Deutsche Börse’s inept communication could yet scupper his ambition. Why should the company pay €10.5 million, even though it was Mr. Kengeter who bought the shares and was the main driver behind the merger with London, an employee asks. Of course, it was possible that the suspicions of insider activities are unfounded, said one broker. “But if the accusations are true, it isn’t right that the company is paying up, while Mr. Kengeter does not.”

There are also signs of resistance in the supervisory board. “It is far from certain that the company will accept the offer,” said someone associated with the board. “And even after that, Mr. Kengeter’s contract extension would be anything but a sure thing.” Indeed, there is an ominous precedent. In 2005, the UK hedge fund TCI ousted Deutsche Börse’s then-CEO Werner Seifert and Chairman Rolf Breuer. Like Mr. Kengeter, Mr. Seifert had just blown a merger with the LSE – and failed to open international perspectives for Deutsche Börse.

Daniel Schäfer is head of Handelsblatt’s finance section and is based in Frankfurt. Michael Brächer covers Deutsche Börse for Handelsblatt and Info Narat reports on stocks and funds. Gerrit Wiesmann of Handelsblatt Global also contributed to this story. To contact the authors:, and

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!