SEC Fines Deutsche Bank (DB) for Failing to Safeguard Material, Nonpublic Info Generated by Research Analysts

October 12, 2016 11:22 AM EDT
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The Securities and Exchange Commission announced that Deutsche Bank Securities (NYSE: DB) has agreed to pay a $9.5 million penalty for failing to properly safeguard material nonpublic information generated by its research analysts. Deutsche Bank also published an improper research report and failed to properly preserve and provide certain electronic records sought by the SEC during its investigation.

According to the SEC’s order, Deutsche Bank encouraged its equity research analysts to communicate frequently with customers as well as its own sales and trading personnel, but lacked adequate policies and procedures to prevent analysts from disclosing yet-to-be-published views and analyses, changes in estimates, and short-term trade recommendations during morning calls, trading day squawks, idea dinners, and non-deal road shows.

“Information generated by research analysts such as ratings, views, estimates, and trading recommendations can move markets,” said Antonia Chion, Associate Director of the SEC Division of Enforcement. “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.”

The SEC’s order also finds that Deutsche Bank issued a research report with a “BUY” rating for discount retailer Big Lots that was inconsistent with the personal view of the analyst who prepared and certified it as true despite privately telling others that Big Lots should have been downgraded. The analyst was charged by the SEC earlier this year.

According to the SEC’s order, the electronic records at issue were certain communications that took place on Deutsche Bank’s internal messaging system known as DB Chat. Deutsche Bank could not represent that it had recovered all of the DB Chat communications involving equity research personnel during the relevant period because the firm failed for multiple years to properly preserve them in an accessible place.

Deutsche Bank consented to the entry of the SEC’s order without admitting or denying the findings. In addition to the financial penalty, Deutsche Bank agreed to be censured and must cease and desist from committing or causing violations and any future violations of Sections 15(g) and 17(a) of the Securities Exchange Act of 1934 and Rule 17a-4 as well as Rule 501 of Regulation AC.

The SEC’s investigation was conducted by Drew M. Dorman, Jason Litow, and Kevin Gershfeld. The case was supervised by Yuri B. Zelinsky and Ms. Chion. Assisting the investigation were Eugene Canjels and Cathy Niden in the SEC’s Division of Economic and Risk Analysis.

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