SEC Investigation Finds That Traders and Salespeople Made False and Misleading Statements While Negotiating Sales of Commercial Mortgage-Backed Securities (“CMBS”)
On February 12, 2018, the Securities and Exchange Commission announced that the SEC instituted an enforcement action against Deutsche Bank Securities Inc., and Deutsche Bank has agreed to repay more than $3.7 million, including $1.48 million ordered as disgorgement, to customers.
The SEC stated that its investigation found that traders and salespeople made false and misleading statements while negotiating sales of CMBS. According to the Deutsche Bank Securities SEC Order, customers overpaid for CMBS, because they were misled about the prices at which Deutsche Bank had originally purchased them. Deutsche Bank, according to the SEC’s order, failed to have compliance and surveillance procedures in place that were reasonably designed to prevent and detect the misconduct that consequently increased the firm’s profits on CMBS transactions to the detriment of its customers.
The SEC’s order finds supervisory failures by the former head trader of Deutsche Bank’s CMBS trading desk, Benjamin Solomon, a resident of Brooklyn, New York, who did not take appropriate action after becoming aware of false statements made to customers by traders under his supervision, including specific misrepresentations about the prices that Deutsche Bank paid for the CMBS.
Deutsche Bank, as part of its settlement, agreed to reimburse customers the full amount of firm profits earned on any CMBS trades in which a misrepresentation was made. According to a payment schedule in the order, Deutsche Bank will distribute more than $3.7 million pay a $750,000 penalty. Benjamin Solomon agreed to pay a $165,000 penalty and serve a 12-month suspension from the securities industry.
Deutsche Bank and Benjamin Solomon consented to the SEC’s order without admitting or denying the findings. The SEC’s order notes that the penalty amounts reflect substantial cooperation by Deutsche Bank and Solomon during the SEC’s investigation, including remedial efforts by the firm to improve its internal controls, compliance training, and surveillance efforts.