(The following is a reformatted version of a press release
issued by the Office of Secretary of the Commonwealth William F.
Galvin and received via electronic mail. The release was
confirmed by the sender.)
March 13, 2013
SECRETARY GALVIN FINES DEUTSCHE BANK SECURITIES $17.5 MILLION
FOR CONFLICTS IN MARKETING COLLATERALIZED DEBT OBLIGATIONS
Secretary of the Commonwealth William F. Galvin today fined
Deutsche Bank Securities Inc. (DBSI), a subsidiary of Deutsche
Bank Akteingesellschaft, $17.5 million for failing to disclose
conflicts of interest relating to its collateralized debt
obligation (CDOs) business-related activities prior to the
The Securities Division investigated DBSI’s failure to disclose
its roles in proposing, coinvesting in, and structuring a $1.56
billion CDO named Carina. The Division’s investigation focused
on a proprietary trading desk of the bank, DBSI Special
Situations Group (DBSI SSG).
DBSI SSG created a co-investment CDO proposal implemented with
Magnetar Capital LLC, a hedge fund. In all, DSBI and Magnetar
co-invested in at least six different CDOs with a value of
During the creation of Carina, a DBSI SSG Managing Director
described the resulting instrument as “not just sponsoring a
CDO, but really a highly structured separate account
mandate,” illustrating the tailored control of DBSI SSG over
When Carina was being marketed to investors, one investor backed
out upon learning that Magnetar was shorting the BBB rated
assets in the CDO, and a DBSI employee e-mailed, “Why
does (prospective investor) know Magnetar is shorting BBBs?”
Nowhere in the marketing materials for Carina was there any
reference to the conflicts of interest with DBSI SSG and
Magnetar in the structuring, underwriting and marketing of
Within a year, rating agencies had downgraded Carina’s notes to
junk status, which resulted in catastrophic losses to investors.
During the relevant time period, DBSI ranked fourth in global
CDO issuances in 2006 and 2007.
The Securities Division said DBSI failed to supervise its
employees who knew but failed to disclose the conflicts of
interest. In addition to the $17.5 million fine, DBSI was
censured and agreed to cease and desist from conduct violating
the state Securities Act.
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