Deutsche Bank CMBS Customers to be Repaid $3.7M

Deutsche Bank CMBS Customers to be Repaid $3.7M

The U.S. Securities and Exchange Commission (SEC) has announced that Deutsche Bank has agreed to pay $3.7 million to customers misled by the firm’s traders and salespeople.

The customers overpaid for commercial mortgage-backed securities (CMBS) because traders on Deutsche Bank Securities Inc.’s CMBS trading desk lied about the prices the bank originally paid for them. The former head of the desk, Benjamin Solomon, failed to take action after learning of the alleged deceptions by his staff.

Deutsche Bank CMBS Desk Misled Customers

The SEC alleged that between 2011 and 2015, Deutsche Bank CMBS desk traders and salespeople made false statements to customers while serving as middlemen in negotiations between selling and buying customers.

According to court documents, the SEC alleges that the traders and salespeople collaborated in their efforts, lying to customers about bid and offer prices on one or both sides of a transaction to boost Deutsche Bank’s profits.

According to the order, the traders would tell customers that the bank paid more for a security than it had, and then charge the customer more than the bank should have received. In a 2013 transaction, Deutsche Bank made over $104,000 in profits, $95,000 of which was attributable to a misstatement made by a CMBS trader.

The order cites another instance in 2012 where Solomon told a salesperson he was aware that a trader knowingly overcharged a customer. The bank made approximately $187,500 on the trade, $125,000 of which is attributable to the trader’s lie.

In total, the bank generated a total of $3.7 million in profits in transactions in which CMBS traders or salespeople misled Deutsche Bank customers. Of that profit, $1.5 million was found to be attributable to false or misleading statements. Deutsche Bank fired Solomon in August 2015.

Deutsche Bank Agrees to Settlement

Without admitting or denying the charges, Deutsche Bank and Solomon reached a settlement with the SEC. The bank agreed to repay $3.7 million to overcharged customers and an additional $750,000 penalty. Solomon agreed to a $165,000 penalty and a one-year suspension from the securities industry.

The SEC said the penalty amounts reflects cooperation by both Deutsche Bank and Solomon during the investigation, including appropriate disciplinary actions, remedial efforts to improve internal controls, surveillance efforts, and compliance training.

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