Deutsche Bank Faces Fraud Allegation, Official Says (Update1)
By Ed Leefeldt
New York, April 4 (Bloomberg) -- Deutsche Bank AG, Europe's second-largest bank, left itself vulnerable to an accusation of fraud after failing to disclose documents to authorities probing bias in Wall Street stock research, a California regulator said.
The bank said it didn't give officials all of its internal e- mails related to the probe, citing an ``inadvertent'' omission. Andre Pineda, deputy commissioner of the California Department of Corporations, said the bank blamed a ``computer error'' for not handing over 80 percent of relevant e-mails.
``Until the present time we hadn't planned to use fraud in the complaint against Deutsche Bank,'' said Pineda in an interview. ``But now that remains to be seen.''
An allegation of fraud by regulators will make it easier for investors and others to collect damages in lawsuits against the firms, securities lawyers said. Deutsche Bank agreed to pay $80 million in a $1.4 billion industrywide accord designed by New York Attorney General Eliot Spitzer to settle charges that the biggest securities firms misled investors with biased research.
The final agreement, which is ``99 percent'' complete, will say some of the firms' actions constituted fraud, Spitzer said yesterday. The firms may include Citigroup Inc., Credit Suisse First Boston and Merrill Lynch & Co., which will pay the biggest fines. Spokesmen for the three declined to comment.
In the settlement, the firms probably won't admit or deny guilt, regulators have said.
Agreement Delayed
The Frankfurt-based bank's participation in the final agreement will be delayed as regulators resume their investigation, Pineda said. News of Deutsche Bank's failure to provide e-mails was earlier reported in the New York Times and Los Angeles Times.
Pineda said that after repeated inquiries by California regulators who couldn't find many e-mails, a Deutsche Bank information technology officer told him last week that the internal communications hadn't been disclosed.
``It was either very sleazy or very stupid,'' said Pineda. ``They haven't told us when we will get them.''
Deutsche Bank spokesman Jezz Farr said the failure was unintentional. ``We immediately informed the regulators and are cooperating fully to provide them with the additional information,'' he said. He declined to comment further.
Earlier this week, San Francisco-based Thomas Weisel Partners LLC, pulled out of the agreement, according to California regulators who had been negotiating a $12.5 million settlement with the closely-held investment bank. Thomas Weisel spokeswoman Amanda Duckworth declined to comment.
`Biggest Fraud'
In a speech to a lawyers group in New York yesterday, Spitzer called the admissions by the biggest Wall Street firms that they published misleading research to win investment banking work ``the largest fraud ever perpetrated on the investing public.''
Wall Street securities firms have reserved more than $3 billion in 2002 and 2003 to pay the expected cost of the global research settlement, along with legal fees and potential civil liabilities, according to the Securities Industry Association.
Pineda said Deutsche Bank's admission indicates that others among the 11 banks in the settlement may not have been totally forthcoming with their files and e-mails.
Deutsche Bank was among five securities firms that agreed in December to pay fines totaling $8.25 million for failing to retain e-mails sought by regulators investigating analysts' conflicts of interest.
Deutsche Bank, Citigroup's Salomon Smith Barney unit, Goldman Sachs Group Inc., Morgan Stanley, and US Bancorp Piper Jaffray Inc. agreed to pay $1.65 million each in fines imposed by the SEC, the NASD and the New York Stock Exchange.
No `Smoking Guns'
``Quite possibly the reason we haven't seen more `smoking guns' in this investigation is that the other states weren't that far along in their investigations,'' Pineda said. The probe of each firm was led by a different state.
``The Wall Street firms had an incentive to wrap this up soon and this may be the reason they wanted to -- for fear that more may come out,'' he said.
The settlement is likely to be signed by the investment banks, all 50 states and the Securities and Exchange Commission, and the New York Stock Exchange and NASD within a few weeks, according to regulators.
Spitzer's spokesman Mark Violette said his office had no comment on the California probe of Deutsche Bank. ``We are letting California do its job and take the lead on this,'' said Violette. ``We are not going to meddle.''
Pineda said there would be no quick end to California's investigation of Deutsche Bank.
``Picture a room full of boxes,'' he said. ``That's what we'll have to go through.''
Last Updated: April 4, 2003 15:36 EST |
