WASHINGTON: Troubled German lender Deutsche Bank on Wednesday (Thursday in Manila) agreed to pay a $9.5 million penalty after US securities regulators accused it failing to safeguard market-sensitive information.
The penalty comes with investors on tenterhooks as the capital-weak Frankfurt bank negotiates a multi-billion-dollar settlement with the US Justice Department over the bank’s trading in toxic mortgage-backed securities prior to the global financial crisis of 2008.
According to the Securities and Exchange Commission, Deutsche Bank encouraged analysts to talk frequently with customers and trading staff, but lacked internal controls to prevent unpublished research from being passed on during morning calls, dinners and road shows.
Securities laws require analysts to protect so-called “material non-public information”, like buy and sell recommendations, from disclosure to investors before it is published.
“Information generated by research analysts such as ratings, views, estimates, and trading recommendations can move markets,” Antonia Chion, associate director for enforcement at the SEC, said in a 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.”
Insider-trading laws and regulations generally prohibit investors from buying or selling a company’s stock based on “material non-public information.”
In one example cited by the SEC in the case, Charles Grom, a former Deutsche Bank analyst, paid a $100,000 penalty in February and was suspended from the securities industry for certifying a “buy” rating on the discount retailer Big Lots while privately telling others that the company should have been downgraded.
The bank was also penalized for published an improper research report and failing to preserve or surrender electronic records during the SEC’s investigation.
The bank neither admitted nor denied the allegations.