The Securities and Exchange Commission today instituted an enforcement action against Deutsche Bank Securities Inc., which has agreed to repay more than $3.7 million to customers, which includes $1.48 million that was ordered as disgorgement.
The SECs investigation found that traders and salespeople made false and misleading statements while negotiating sales of commercial mortgage-backed securities (CMBS). According to the SECs order, customers overpaid for CMBS because they were misled about the prices at which Deutsche Bank had originally purchased them. According to the SECs order, Deutsche Bank failed to have compliance and surveillance procedures in place that were reasonably designed to prevent and detect the misconduct that consequently increased the firms profits on CMBS transactions to the detriment of its customers.
The SECs order finds supervisory failures by the former head trader of Deutsche Banks CMBS trading desk, Benjamin Solomon, who did not take appropriate action after becoming aware of false statements made to customers by traders under his supervision, including specific misrepresentations about the prices that Deutsche Bank paid for the CMBS.
Were committed to ensuring that firms communicate accurate pricing information when transacting with customers in opaque markets, said Daniel Michael, Chief of the SEC Enforcement Divisions Complex Financial Instruments Unit. Deutsche Bank and Solomon failed to keep watch as traders generated profits for the firm at the expense of CMBS customers by misrepresenting purchase prices and other important details.
To settle the charges, Deutsche Bank agreed to reimburse customers the full amount of firm profits earned on any CMBS trades in which a misrepresentation was made. According to a payment schedule in the order, Deutsche Bank will distribute more than $3.7 million. Deutsche Bank also agreed to pay a $750,000 penalty. Solomon agreed to pay a $165,000 penalty and serve a 12-month suspension from the securities industry.
Deutsche Bank and Solomon consented to the SECs order without admitting or denying the findings. The order notes that the penalty amounts reflect substantial cooperation by Deutsche Bank and Solomon during the SECs investigation, including remedial efforts by the firm to improve its internal controls, compliance training, and surveillance efforts.
The SECs investigation was conducted by staff in the Complex Financial Instruments Unit and the New York Regional Office, including William Finkel, Elisabeth Goot, and Richard Hong. The case was supervised by Mr. Michael.