The Securities and Exchange Commission said the Frankfurt-based bank had failed to keep proper controls over material non-public information generated by its research analysts, and also failed to properly preserve transcripts from its internal chat system which were sought by the SEC.
The penalty came after the SEC broadened an earlier investigation into Charles Grom, a Deutsche analyst who issued a glowing research report that glossed over concerns he had aired privately to a select group of hedge fund clients. In February the SEC fined Mr Grom $100,000 and banned him from the industry for a year. Mr Grom was sacked by the bank in February 2013 for misconduct.
“We are pleased to have resolved this matter,” the bank said. “The bank takes its research analyst communications and conduct very seriously and has had a robust policy and control framework. In response to the SEC’s concerns, further enhancements were implemented.”
The fine is the latest in a long line of regulatory run-ins for the US arm of the German bank, where John Cryan, chief executive, is trying to ease fears among investors over persistent losses, thin capital and lingering litigation risks. The bank is locked in discussions with officials at the US Department of Justice to reach a settlement over the alleged mis-selling of mortgage-backed securities.
Deutsche has flunked its main regulatory exam in the US — the annual stress test carried out by the Federal Reserve in Washington — for the past two years, with the Fed finding a host of weaknesses in a unit accounting for about 14 per cent of US assets.
According to the SEC’s order on Wednesday, Deutsche encouraged its roughly 50 research analysts to communicate with customers as well as its own sales and trading personnel, but lacked policies and procedures to prevent analysts from disclosing yet-to-be-published views and analyses, changes in estimates, and short-term trade recommendations. Controls were weak across various settings, the SEC found: during morning calls, bulletins over the internal speaker system during the trading day, so-called “idea dinners” with clients and non-deal road shows.
Deutsche Bank has suffered another bloody nose at the hands of US regulators, with a $9.5m fine for failings in its equity research department.
On one occasion in March 2012, a Deutsche analyst hosted an all-day roadshow for an unnamed company, during which executives at the company met privately with investors. The analyst — who attended all of these meetings — then shared his thoughts on the company’s prospects for the quarter with a select group of Deutsche’s customers. The following morning he published a report containing views that were much the same as those shared with at least one of those customers.
“Information generated by research analysts such as ratings, views, estimates, and trading recommendations can move markets,” said Antonia Chion, associate director of the SEC’s enforcement division. “Broker-dealers must maintain and enforce policies and procedures that are reasonably designed in light of the nature of their business to prevent the misuse of such information.”
From 2018, Deutsche’s whole US holding company will be subject to the rigours of the Fed’s stress test, known as the Comprehensive Capital Analysis and Review. Senior executives at Deutsche are focused on that deadline, according to people familiar with the bank’s strategy — implying that a third straight failure of the test for the smaller unit is a possibility next year.
Source: Financial Times
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