Deutsche Bank Fined by SEC Over Failure to Guard Research

  • Lender will pay $9.5 million to resolve agency’s allegations
  • Former analyst got one-year ban over grading of Big Lots Inc.

Goldman's Swell Sees Opportunities in Deutsche Bank

Deutsche Bank AG will pay $9.5 million to settle U.S. Securities and Exchange Commission allegations that the bank failed to properly safeguard non-public information generated by its research analysts.

One of the securities law violations highlighted by the SEC on Wednesday was related to a high-profile case from earlier this year in which the agency accused a Deutsche Bank Securities analyst of maintaining a “buy” rating on Big Lots Inc. while telling clients privately that he thought they should sell the stock.

The bank also encouraged equity analysts to communicate often with its trading desks and clients, and didn’t have policies and procedures in place to prevent disclosure of market-moving information, the SEC said in a statement. The company agreed to resolve the claims without admitting or denying the agency’s findings, the agency said.

“Information generated by research analysts such as ratings, views, estimates, and trading recommendations can move markets,” Antonia Chion, associate director of the SEC’s enforcement unit, said in the statement. “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.”

In February, the SEC fined Deutsche Bank analyst Charles Grom for recommending Big Lots stock to clients in 2012 while telling colleagues internally that he didn’t downgrade the company because he wanted to maintain his relationship with its management. The analyst communicated with hedge-fund clients about his negative view of the company and some of those firms ended up selling their entire positions, the SEC said. Grom, who no longer works for Deutsche Bank, agreed to a one-year industry ban and $100,000 penalty without admitting or denying the regulator’s allegations.

The SEC also cited Deutsche Bank’s hosting of “idea dinners,” where analysts and clients were “expected to share at least one buy or sell investment idea.” At one dinner in April 2012, a junior analyst gave about 10 clients two trade ideas that were at odds with the bank’s published recommendations. The bank made no record of the ideas shared, the SEC said.

“The bank takes its research analyst communications and conduct very seriously and has had a robust policy and control framework,” Amanda Williams, a Deutsche Bank spokesperson, said in an e-mail statement. “In response to the SEC’s concerns, further enhancements were implemented.”

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