Fraud Charge for Deutsche Possible
California regulators said Friday that they may charge Deutsche Bank with securities fraud and force it to pay a larger fine than it agreed to last year as part of a landmark Wall Street settlement, after the disclosure that the company failed to turn over key evidence to government investigators.
The California Department of Corporations may reconsider the tentative deal that called for Deutsche to pay a $50-million fine -- but escape a fraud charge -- to settle the firm’s part of a wide-ranging federal and state investigation of Wall Street.
The decision will be based on what is found in scores of e-mail messages that Deutsche is expected to hand over in coming days, said Andre Pineda, the department’s deputy commissioner.
“Everything is open to evaluation, from the statement of facts to the dollar amount” of fines, Pineda said.
A Deutsche spokeswoman declined to comment.
The New York-based arm of the giant German bank said Thursday that an “inadvertent omission” caused it to turn over only a portion of the e-mails sought by California regulators and the Securities and Exchange Commission. That probably will prevent Deutsche from joining in the final settlement expected to be signed by 10 other Wall Street firms in the next few weeks.
Deutsche Bank’s U.S.-traded shares rose $1.30 to $44.42 on Friday on the New York Stock Exchange.
The size of fines and potential fraud allegations are key issues for Deutsche Bank and other Wall Street firms as they try to close the books on embarrassing and costly probes into whether stock analysts dished out intentionally dubious advice to investors in the late 1990s.
The fraud issue is thought to be especially critical. Though firms typically neither admit nor deny guilt in regulatory settlements, the mere allegation could strengthen the legal cases of small investors who have filed myriad lawsuits and arbitrations against the companies.
Firms have negotiated furiously over the last three months to preempt fraud and other harshly worded allegations. That is a key reason it has taken so long to work out a final settlement even though the contours of a tentative deal were made public in December.
Only three firms -- Citigroup Inc., Credit Suisse Group’s Credit Suisse First Boston and Merrill Lynch & Co. -- will be accused of securities fraud, said a person familiar with the issue.
Investigators previously had not turned up evidence supporting a fraud charge against Deutsche, Pineda said.
“Had we seen a smoking gun prior? No, we hadn’t,” Pineda said. “Who knows what we’ll see in these” e-mails.
The amount of a Deutsche fine also has been a touchy issue in the past.
Last year, Demetrios A. Boutris, California’s top securities regulator, argued that Deutsche and other firms should be assessed fines of at least $100 million each for the wrongdoing of their analysts. He was especially adamant that Deutsche be held to that amount because his office, along with the SEC, headed up the probe of the firm.
He later agreed reluctantly to reduce the Deutsche fine to $50 million after lobbying from regulators who believed that the larger amount was too steep.
In the tentative deal in December, Deutsche agreed to pay $80 million: $50 million in a fine, $25 million for the distribution of independent research and $5 million for investor education.
*
(BEGIN TEXT OF INFOBOX)
Settlement fines
Here are the fines 10 brokerages have agreed to pay to settle government probes of alleged wrongdoing by stock analysts.
*--* Fine* Brokerage (In millions) Citigroup $300 Credit Suisse First Boston $150 Merrill Lynch $100 Morgan Stanley $50 Goldman Sachs $50 Bear Stearns $50 Deutsche Bank $50 J.P. Morgan Chase $50 Lehman Bros $50 UBS Warburg $50
*--*
* In addition, most of the firms would pay varying sums to fund independent research and investor education.
Source: Bloomberg News
