Deutsche Bank Securities agreed to pay more than $3.7 million to customers as a result of an enforcement action by the SEC. The fine also included a $1.48 million in disgorgement.
The SEC found out in the course of their investigation that Deutsche traders made false statements while negotiating sales of commercial mortgage-backed securities (CMBS). The agency also found that customers overpaid for these instruments because they were misled about the prices at which Deutsche acquired the commercial mortgage-backed securities.
The German bank failed to have the appropriate compliance and surveillance processes in place which should have prevented the misconduct that led to the firm’s ill-gotten profits on CMBS transactions to the detriment of its customers.
The SEC said that Benjamin Solomon, the former head trader of Deutsche Bank’s CMBS trading division, did not take appropriate steps after becoming aware of false statements made to customers by traders under his watch.
Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, had this to say:
“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.”As part of the settlement with the SEC, Deutsche Bank agreed to repay clients the full amount of profits earned on any CMBS deals in which a misrepresentation was made, which amounts to more than $3.7 million.
The bank will also have to pay an additional penalty of $750,000. Solomon was given a penalty of $165,000, as well as a 12-month suspension from the securities industry.
According to the SEC, Deutsche Bank and Solomon agreed to the SEC’s order without admitting or denying the findings. There was also substantial cooperation by Deutsche Bank and Solomon during the SEC’s investigation.
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