On February 12, 2018, the Securities and Exchange Commission (“SEC”) instituted an enforcement action against Deutsche Bank Securities Inc. (“Deutsche Bank”) (the “Order”). At the conclusion of this Deutsche Bank was ordered to pay $3.7 million back to customers, with $1.48 million as disgorgement penalties.
According to the Order, during the course of its investigation, the SEC found that traders and salespeople at Deutsche Bank made false statements surrounding the sale of commercial mortgage-backed securities (CMBS). The investigation found that Deutsche Bank employees would tell costumers that they had on a certain date purchased a bundle of CMBS for a certain price – when in fact that bundle of CMBS may have been purchased at a far earlier date for an entirely different price.
There have been several lawsuits, arbitrations, investigations, and enforcement actions surrounding the obligations of traders and salespeople to customers in regards to revealing or accurately disclosing previous purchase prices of securities. Most of these cases hinge on the question of whether or not a sales person revealing their purchase price of a security is a materially relevant fact. Defendants in these matters have taken the position that accurate representations of securities previous purchase prices are not materially relevant, because buyers have their own valuation methods, and can analyze the market themselves – and they would not be buying large blocks of securities if they did not think they were worth the asking price. They also argue that most buyers of large blocks of securities, who interact with investment banking salespeople, are institutional buyers, and therefore have their own teams of analysts to perform valuation. Regulators and Plaintiffs attorneys take the position that traders should never be able to lie to their customers, and that the actual prices paid are not simply proprietary information, but materially relevant facts that must also be disclosed to a prospective purchaser.