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Deutsche Bank Settles SEC Case

Its management unit is fined $750,000 for its actions in HP-Compaq merger vote.

August 20, 2003|From Associated Press

The federal government slapped a $750,000 fine on Deutsche Bank's investment management division Tuesday for failing to disclose its conflict of interest in the hard-fought 2002 vote over Hewlett-Packard Co.'s $19-billion acquisition of Compaq Computer Corp.

Deutsche Asset Management neglected to tell its clients that the company's investment banking division was working for HP during its proxy fight against dissident director Walter Hewlett, the Securities and Exchange Commission said.

HP paid Deutsche Bank $1 million for "market intelligence" during the proxy fight, with an additional $1 million contingent on the deal's success.

At first, Deutsche Asset Management voted 17 million HP shares held by its clients against the Compaq acquisition. But the votes were switched in favor of the deal after a last-minute pitch by HP's top two executives.

The SEC said HP's pitch came after senior executives in Deutsche Bank's investment banking arm contacted top members of the asset-management division, who then agreed to hear HP's side again. When Deutsche asset managers were reconsidering their vote, they were told about the investment banking unit's relationship with HP, the SEC said.

A short time later, on the morning HP held its shareholder vote on the Compaq acquisition in a Silicon Valley auditorium, Deutsche Asset Management cast the 17 million shares in favor of the deal.

The SEC did not find that the outcome of Deutsche Asset Management's vote was affected by the investment bank's relationship with Hewlett-Packard. But it said Deutsche Asset Management should have disclosed the relationship to its clients so they could have decided for themselves how to proceed.

"The message is that the process matters," said Helene Morrison, district administrator for the SEC's San Francisco office.

Deutsche Bank agreed to pay the $750,000 fine but did not admit or deny the SEC's findings. The firm said in a statement that "even before today's settlement, we voluntarily strengthened our policies regarding information barriers to ensure that proxies will continue to be cast in the best interests of our advisory clients."

HP's purchase of Compaq was approved 51% to 49%, making it one of the closest proxy contests in years. The winning margin was 45 million votes, so Deutsche's switch did not affect the outcome.

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