A former quantitative analyst has blown the whistle on what could be a multi-billion-dollar securities violation at Deutsche Bank AG (NYSE:DB), prompting the Securities and Exchange Commission to open an investigation into one of the only banks to survive the financial crisis without direct state assistance.

How Big Could This Skeleton Be?

Ever since the financial crisis knocked the global economy to the floor in 2008, once-passive regulators have put on their serious-business hats and cracked down on dubious behavior by the world’s biggest banks. In the United States, top institutions such as Goldman Sachs (NYSE:GS), Citigroup (NYSE:C), and Bank of America (NYSE:BAC) have faced litigation related to mortgage-backed security investments and lack of oversight in money-laundering security. Reckless traders have been forced to pay for risky bets gone bad, many being sentenced to jail time, and will likely go down in history as case studies for bad banking behavior.

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If Eric Ben-Artzi, the former analyst who blew the whistle, is right, then Deutsche Bank could join the growing list of institutions that committed major violations during the financial crisis.

Ben-Artzi claims that Deutsche Bank misrepresented the value of a portfolio of leveraged super senior derivatives with a notional value between $120 and $130 billion — that is, the bank didn’t actually value the portfolio and as a result was able to hide as much as $12 billion in losses.

According to a statement issued by the law firm representing Ben-Artzi: “By not accurately valuing it, the bank was able to maintain its carefully crafted public image that it was weathering the financial crisis better than its peers – many of which required financial assistance from the government and experienced significant deterioration in their stock prices. Even using conservative assumptions, if the LSS portfolio had been properly valued, the bank would have substantially missed its earnings estimates. Due to these material misrepresentations, countless investors may have been harmed.”

CHEAT SHEET Analysis: Honest Accounting is Called Into Question

One of the core components of our CHEAT SHEET investing framework requires companies to have zero evidence of account manipulation. In this case, there is no proof that Ben-Artzi’s claims are correct, but it would be imprudent to simply dismiss them.

According to Bloomberg, Renee Calabro, a spokeswoman for Deutsche Bank, says that “The allegations of financial misstatements, which are more than 2 1/2 years-old and were publicly reported in June 2011, have been the subject of a careful and thorough investigation, and they are wholly unfounded.”

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