Deutsche Bank said it relied on a rigorous vetting process in selecting hedge fund investments for its wealth management clients.
It turns out, the only funds Deutsche Bank evaluated were those that agreed to share money with the German lender. The allegation was laid out in a Thursday order from the SEC, which fined a U.S. unit of Deutsche Bank $500,000.
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Following criticism for its faulty 2016 election algorithms, the firm appointed a new research director to collaborate with its quants and money managers.
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The recent plunge raised suspicions that quants had caused or exacerbated the sell-off.
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Despite returns of about 8% last year, the products lagged behind the S&P 500’s 22% climb.
January 5
From 2009 through mid-2018, Deutsche Bank Trust Company Americas told investors in marketing materials that it had an in-house research group that used a multistep due diligence process. Left out of the disclosures was that the group limited its reviews to hedge funds that passed on management fees.
The unit misled investors by highlighting that the research group performed “quantitative and qualitative due diligence” from an “extremely large universe” of asset managers, the SEC said. The unit agreed to settle the claims without admitting or denying the regulator’s findings.
The bank has amended its disclosures to reflect that it will only evaluate funds that agree to share fees, the SEC said.
A Deutsche Bank spokesman said the bank has updated its disclosures for further transparency.
