A broker-dealer agreed to pay approximately $4.5 million to settle SEC charges in connection with certain disclosures to customers regarding bond prices.
According to the SEC Order, traders and salespeople at Deutsche Bank Securities, Inc. ("DBSI") made incorrect statements to customers regarding the price of commercial mortgage-backed securities ("CMBS"). The SEC said that the DBSI employees misled customers on the prices that DBSI had paid for securities that were to be on-sold to customers. The SEC charged DBSI with failure to supervise, and failing to establish policies and procedures reasonably designed to identify and prevent CMBS traders from making misrepresentations to clients.
DBSI agreed to return over $3.7 million to clients and pay a $750,000 penalty. The former supervisor of DBSI's CMBS trading desk also settled failure to supervise charges and agreed to pay a $165,000 penalty in addition to a 12-month suspension from the securities industry. In reaching the settlement, the SEC noted DBSI's remedial efforts, and both the firm and the supervisor's cooperation with the investigation.
Neither the firm nor the supervisor made any admission in connection with the settlements.
Commentary / Kyle DeYoung
This case, along with earlier cases involving Jefferies and Nomura, reflects a shift in expectations regarding the conduct of securities traders. Historically, a customer seeking to purchase a bond might ask a salesperson what the salesperson had paid for the bond, but might not expect a truthful answer (and it is not a question that the salesperson would be legally obligated to answer). Going forward, any salesperson who elects to answer the question should do so truthfully.
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