FINRA Sanctions Deutsche Bank Securities for Supervisory Issues Related to Tender offers
According to the Financial Industry Regulatory Authority (FINRA), the regulator has censured and fined Deutsche Bank Securities (CRD #2525) $800,000, of which $156,250 is payable to FINRA for supervisory issues.
From June 2013 through February 2019, Deutsche Bank reportedly failed to have a reasonably designed supervisory system for its participation, and the participation of its customers, in partial tender offers.
Prior to February 2016, the firm allegedly lacked any supervisory system, including written supervisory procedures, designed to achieve compliance with Rule 14e-4. In February 2016, the firm incorporated into its WSPs a two-page operational procedures document for processing instructions from customers and proprietary accounts related to voluntary corporate actions, such as tender offers. This review, however, was limited to ensuring that the firm processed tender instructions accurately without regard to whether it, or its customers, were net long the shares tendered.
Further, operational procedures were flawed because they did not consider several required factors, such as options positions or securities held by the same person in multiple accounts, when calculating a person’s position in the security being tendered. Deutsche Bank Securities’ supervisory system allowed violations of Rule 14e-4 to continue without detection. As a result, the firm impermissibly over-tendered 1,988,954 shares in a partial tender offer on behalf of its parent company’s London bank branch without a reasonable belief that London Bank possessed or owned all the shares tendered.
Consequently, other tendering shareholders received fewer shares than they otherwise would have received had London Bank not over-tendered.
In addition, the firm failed to register an employee who executed several securities transactions as a securities trader in connection with Deutsche Bank’s participation in the partial tender offer.
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