Deutsche Bank vulnerable on fraud, official says

Much e-mail not yielded in probe of stock research

April 05, 2003|By BLOOMBERG NEWS

NEW YORK -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 yesterday.

The bank said it didn't give officials all of its internal e-mail related to the probe, and it described the omission as "inadvertent." Andre Pineda, deputy commissioner of the California Department of Corrections, said the bank blamed a "computer error" for its not handing over more than 80 percent of relevant e-mail messages.

"Until the present time, we hadn't planned to use fraud in the complaint against Deutsche Bank," Pineda said in an interview. "But now that remains to be seen."

An allegation of fraud by regulators would 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.

Frankfurt-based Deutsche Bank's participation in the final agreement will be delayed as regulators resume their investigation, Pineda said.

He said that after repeated inquiries by California regulators who couldn't find many e-mail messages, 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.

The Deutsche Bank spokesman declined to comment further.

In a speech to a lawyers group in New York Thursday, 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."

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-mail.

Deutsche Bank was among five securities firms that agreed in December to pay fines totaling $8.25 million for failing to retain e-mail 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, NASD and New York Stock Exchange.

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