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Deutsche Bank May Face Fraud Charge, Hefty Fine

Apr 5, 2003 | Los Angeles Times

California regulators said Friday that they may charge Deutsche Bank with securities fraud and force it to pay a larger fine than it agreed to last year as part of a landmark Wall Street settlement, after the disclosure that the company failed to turn over key evidence to government investigators.

The California Department of Corporations may reconsider the tentative deal that called for Deutsche to pay a $50-million fine — but escape a fraud charge — to settle the company’s part of a wide-ranging federal and state investigation of Wall Street.

The final decision will be based on the state’s review of scores of e-mail messages that Deutsche is expected to hand over in coming days, said Andre Pineda, the department’s deputy commissioner.

“Everything is open to evaluation, from the statement of facts to the dollar amount†of fines, Pineda said.

A Deutsche spokeswoman declined to comment.

The New York-based arm of the giant German bank said Thursday that an “inadvertent omission†caused it to turn over only a portion of the e-mails sought by California regulators and the Securities and Exchange Commission. That likely will prevent Deutsche from joining in the final settlement expected to be signed by 10 other Wall Street companies in the next few weeks.

Deutsche Bank’s U.S.-traded shares rose $1.30 to $44.42 Friday on the New York Stock Exchange.

The size of fines and potential fraud allegations are key issues for Deutsche Bank and other Wall Street companies as they try to close the books on embarrassing and costly probes into whether stock analysts dished out intentionally dubious advice to investors in the late 1990s.

The fraud issue is thought to be especially critical. Although companies typically neither admit nor deny guilt in regulatory settlements, the mere allegation could strengthen the legal cases of small investors who have filed myriad lawsuits and arbitrations against the companies.

Companies have negotiated furiously over the last three months to pre-empt fraud allegations. That is a key reason why it has taken so long to work out a final settlement even though the contours of a tentative deal were made public in December.

Only three companies — Citigroup Inc. Credit Suisse Group’s Credit Suisse First Boston and Merrill Lynch & Co. — will be accused of securities fraud, said a person familiar with the issue.

Investigators had previously not turned up evidence supporting a fraud charge against Deutsche, Pineda said.

“Had we seen a smoking gun prior? No, we hadn’t,†Pineda said. “Who knows what we’ll see in these†e-mails.

The amount of a Deutsche fine also has been a touchy issue in the past.

Late last year, Demetrios A. Boutris, California’s top securities regulator, had argued that Deutsche and other companies should be assessed fines of at least $100 million each for the wrongdoing of their analysts. He was especially adamant that Deutsche be held to that amount because his office, along with the SEC, headed up the probe of the company. He later agreed reluctantly to reduce the Deutsche fine to $50 million after lobbying from other regulators who felt the larger amount was too steep.

In the tentative deal in December, Deutsche agreed to pay a total of $80 million, including $50 million in a fine; $25 million for the distribution of independent research; and $5 million for investor education programs.

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