State Eases Fine for Deutsche
California regulators have backed off a demand that Deutsche Bank pay a $100-million fine to resolve an investigation of stock analysts, thus removing a potential stumbling block toward an industrywide settlement of analyst conflicts.
The state’s top securities regulator, Demetrios A. Boutris, agreed Tuesday to cut his settlement demand in half to $50 million, putting California more in line with the positions of other states, according to a source familiar with the matter. Boutris changed his stance after New York Atty. Gen. Eliot Spitzer lobbied him during a phone call Tuesday morning, sources said.
Boutris drew attention late last month when he publicly broke ranks with other regulators over the size of fines that firms should pay. He contended that each of the 12 firms should pay a minimum of $100 million. That was far more than his fellow regulators were seeking from some firms.
Realizing it lacked support, California recently indicated that it would sign off on lower penalties for firms other than Deutsche.
It held fast on seeking a bigger penalty against the German banking firm because California had headed up the probe of the company and maintained that its conduct warranted the larger fine.
It is unclear whether Deutsche would agree even to a fine of $50 million. The firm has offered to pay only $15 million, a source said. It also is uncertain whether California would accept a lower amount.
Boutris did not return a phone call Tuesday seeking comment. A Deutsche spokeswoman declined to comment.
But California’s reduced demand could help pave the way for a so-called global settlement of Wall Street wrongdoing in the 1990s.
State and federal regulators have been negotiating with a dozen Wall Street firms to end a series of government investigations into conflicts of interest involving stock analysts.
Some firms, such as Citigroup and Credit Suisse First Boston, have signaled their willingness to conclude a deal and pay the current fines asked of them. Citigroup is near a deal to pay $350 million, and CSFB would shell out $150 million.
However, about half a dozen companies, including Deutsche, UBS Warburg and Lehman Bros. Holdings, have protested the $50-million penalties that regulators have sought from each of them in recent days.
The negotiations have been complicated by California’s insistence that Deutsche pay a bigger fine, and the state threatened to withhold its assent to any deal in which the firm was fined less than $100 million.
California pressed its position with other state regulators during a conference Monday. But other regulators balked and argued that the evidence against Deutsche is no worse than against firms from which regulators are seeking $50-million payments, sources said.
California has mulled over the idea of hiring an outside law firm to help with its Deutsche investigation but has taken no action in that direction, a source said.
Regulators held a series of intensive meetings with individual firms last week and have had follow-up conversations with the recalcitrant firms this week.
“We’re getting closer with a number of firms, but others are farther apart,” one regulator said.
The main objection from the firms is not about specific penalty amounts, another regulator said. Rather, they are concerned with how they would appear relative to their competitors.
“They don’t really care if it’s $40 million or $50 million or $60 million,” the regulator said. “But it’s, ‘I don’t want to pay more than [a rival firm]. I’m not worse than them.”
Along with fines, the Wall Street companies also would agree to a series of reforms. One of the biggest is that the firms would distribute independent research reports to their customers, in addition to reports prepared by the firms’ own analysts.
Regulators and the firms are close to a final agreement on how that would work. But they have not yet agreed to the specifics.
