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Deutsche Bank Pays $17.5 Million to End Massachusetts Probe

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March 13 (Bloomberg) -- Deutsche Bank AG reached a $17.5 million settlement with Massachusetts regulators who said the firm’s employees didn’t disclose conflicts of interest tied to collateralized debt obligations before the financial crisis.

The bank’s securities unit failed to ensure that buyers of a CDO known as Carina knew a proprietary trading group at the firm and a hedge fund had played a role in structuring the product in 2006, Secretary of the Commonwealth William Galvin said today in a consent order. The group and fund intended to bet against part of the CDO or similar debt, he said. Galvin faulted the bank’s unit, known as DBSI, for supervisory lapses.

“Unless DBSI had disclosed these conflicts of interest, investors could not have known of them and would not have invested in Carina,” Galvin’s office wrote in the order. “In less than one year, rating agencies downgraded Carina’s notes to junk status, resulting in substantial losses.”

The bank didn’t admit or deny violating laws, the order shows.

“We are pleased to have reached this settlement and put this matter behind us,” said Renee Calabro, a spokeswoman for the Frankfurt-based bank.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net