Deutsche Bank Pays Multi-Million Dollar SEC Settlement | Business| Economy and finance news from a German perspective | DW | 27.08.2004
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Deutsche Bank Pays Multi-Million Dollar SEC Settlement

The brokerage unit of Deutsche Bank has voluntarily agreed to pay almost $90 million in compensation to settle allegations of misconduct, U.S. regulators announced Friday.


Deutsche Bank's brokerage unit is one of many big firms to pay out

Deutsche Bank Securities, the brokerage unit of Germany's Deutsche Bank, will pay $87.5 million (€72.4 million) to settle allegations that it issued stock research that was biased by its investment-banking business, according to an announcement by regulators from the U.S. Securities and Exchange Commission (SEC).

On top of the payment, Deutsche Bank will also be required to dramatically change the way it does business, including severing the troublesome links between analysts' stock research and the firm's investment-banking departments.

"We have already voluntarily implemented the industry-wide reforms that separate research and investment banking," said Deutsche Bank spokeswoman Rohini Pragasam in a statement to Reuters.

Inappropriate working practices

From mid-1999 through mid-2001, Deutsche Bank "engaged in acts and practices that created or maintained inappropriate influence by investment banking over research analysts, thereby imposing conflicts of interest on research analysts that the firms failed to manage in an adequate or appropriate manner," the SEC regulators said in the statement.

The statement went on to explain that Deutsche Bank "issued research reports that were not based on principles of fair dealing and good faith, and did not provide a sound basis for evaluating facts, contained exaggerated or unwarranted claims about the covered companies, and/or contained opinions for which there were no reasonable bases."

In addition, there were supervisory deficiencies at the bank, according to the regulators. Half of the fines and restitution being paid will go into a fund for their customers; the other half will go to state securities regulators.

Bank agrees to walk straight and narrow

Deutsche Bank neither admitted to nor denied the allegations. It did, however, agree to refrain from future violations and to restrict distributions of hot new stocks to favored company executives and directors, a practice known as "spinning."

The delay of more than a year for the settlement with Deutsche Bank was caused by its failing to promptly turn over internal e-mails during the investigation, the regulators said, and the firm is paying $7.5 million for that alleged lapse as part of the settlement.

The $87.5 million being paid by Deutsche Bank also includes a $25 million civil fine for alleged conflicts of interest, restitution of $25 million, $25 million to fund independent securities research and $5 million for investor education.

Wall Street giants hit by revelations

The probe which led to the investigation into Deutsche Bank Securities, which also included a number of high profile Wall Street firms, was prompted in part by abuses revealed by New York Attorney General Eliot Spitzer and resulted in a massive $1.4 billion settlement that involved investment banking giants, including Goldman Sachs and Merrill Lynch.

U.S. bank Thomas Weisel Partners also voluntarily agreed to pay damages for many of the same reasons as Deutsche Bank Securities on Friday. Thomas Weisel will pay $12.5 million; a $5 million fine for alleged conflicts of interest, $5 million in restitution and $2.5 million for independent research.

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