Deutsche Bank Fined $750,000 Over Conflict Of Interest

by Glen Shapiro, LawAndTax-News.com, New York

21 August 2003

Deutsche Bank agreed on Tuesday to pay a $750,000 fine to the US Securities and Exchange Commission (SEC) over charges that it failed to reveal a conflict of interest during a vote last year on Hewlett Packard's acquisition of Compaq.

In a statement released on Tuesday, the SEC announced that:

'The Commission's Order Instituting Proceedings finds that, unbeknownst to DeAM's advisory clients, Deutsche Bank's investment banking division was working for HP on the merger, and had intervened in DeAM's proxy voting process on behalf of HP. This created a material conflict of interest for DeAM, which had a fiduciary duty to act solely in the best interests of its advisory clients.'

'The Order finds that DeAm violated this duty by voting the proxies on the HP stock owned by its advisory clients, without first disclosing the conflict.'

Stephen Cutler, the director of the division of enforcement at the SEC confirmed this, explaining that:

'Voting client proxies is a critical function of an investment adviser. If the adviser has a material conflict of interest, it must tell its clients about the conflict before voting so the clients can decide whether they want to vote the proxies themselves, allow the adviser to vote them, or make some other arrangement, such as having a shareholder service vote the proxies.'

Deutsche Bank, whilst agreeing to pay the fine, has neither admitted nor denied the SEC's findings with regard to the 2002 deal. However, the firm recently announced that it has voluntarily strengthened its policies on information barriers in order to ensure 'that proxies will continue to be cast in the best interests of our advisory clients'.

Recommended