Steve Novak: FINRA Fines Deutsche Bank Securities

The Financial Industry Regulatory Authority (FINRA) announced it has fined Deutsche Bank Securities Inc. $6 million for failing to provide complete and accurate trade data in an automated format in a timely manner when requested by FINRA and the Securities and Exchange Commission (SEC). As part of the settlement, Deutsche Bank has agreed to retain an independent consultant to improve its policies, systems and procedures related to blue sheet submissions.

FINRA and the SEC regularly request certain trade data, also known as “blue sheets,” to assist in the investigation of market manipulation and insider trading. Federal securities laws and FINRA rules require firms to provide this information to FINRA and other regulators electronically upon request. Blue sheets provide regulators with critical detailed information about securities transactions, including the security, trade date, price, share quantity, customer name, and whether it was a buy, sale or short sale. This information is essential to regulators’ ability to discharge their enforcement and regulatory mandates.

Cameron Funkhouser, Executive Vice President and Head of FINRA’s Office of Fraud Detection and Market Intelligence, said, “Firms are expected to provide complete, accurate and timely blue sheet data in response to regulatory requests. Incomplete and inaccurate blue sheet data compromises our ability to identify individuals engaging in insider trading schemes and other fraudulent activity. Firms must invest the resources necessary to ensure that they are providing complete and accurate blue sheet data whenever requested – without exception.”

Utah Securities Lawyer

FINRA found that from at least 2008 through at least 2015, Deutsche Bank experienced significant failures with its blue sheet systems used to compile and produce blue sheet data, including programming errors in system logic and the firm’s failure to implement enhancements to meet regulatory reporting requirements. These failures caused the firm to submit thousands of blue sheets to regulators that misreported or omitted critical information on over 1 million trades.

Additionally, FINRA found a significant number of Deutsche Bank’s blue sheet submissions did not meet regulatory deadlines. Firms typically have 10 business days to respond to a blue sheet request. Between January 2014 and August 2015, approximately 40 percent of Deutsche Bank’s blue sheets were filed past the regulatory deadline; and likewise, from July to August 2015, more than 90 percent of Deutsche Bank’s blue sheets were not submitted to FINRA on a timely basis.

In settling this matter, Deutsche Bank neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

FINRA’s investigation was conducted by the Office of Fraud Detection and Market Intelligence, and the Department of Enforcement.

SEC: CITIGROUP PROVIDED INCOMPLETE BLUE SHEET DATA FOR 15 YEARS

The Securities and Exchange Commission announced that Citigroup Global Markets has agreed to pay a $7 million penalty and admit wrongdoing to settle charges that a computer coding error caused the firm to provide the agency with incomplete “blue sheet” information about trades it executed.

According to the SEC’s order instituting a settled administrative proceeding, the coding error occurred in the software that Citigroup used from May 1999 to April 2014 to process SEC requests for blue sheet data, including the time of trades, types of trades, volume traded, prices, and other customer identifying information. During that 15-year period, Citigroup consequently omitted 26,810 securities transactions from its responses to more than 2,300 blue sheet requests. After discovering the coding error, Citigroup failed to report the incident to the SEC or take any steps to produce the omitted data until nine months later.

“Broker-dealers have a core responsibility to promptly provide the SEC with accurate and complete trading data for us to analyze during enforcement investigations,” said Robert A. Cohen, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit. “Citigroup did not live up to that responsibility for an inexcusably long period of time, and it must pay the largest penalty to date for blue sheet violations.”

KURT GOTTSCHALL NAMED ASSOCIATE REGIONAL DIRECTOR IN THE SEC’S DENVER REGIONAL OFFICE

The Securities and Exchange Commission announced that Kurt L. Gottschall has been named the Associate Regional Director for enforcement in the Denver office.

Mr. Gottschall began working as a staff attorney in the Denver office’s Division of Enforcement in 2000, before becoming a Branch Chief in 2003, and an Assistant Regional Director in 2010. Since 2012, he worked in the Asset Management Unit, which focuses on misconduct by investment advisers and investment companies. During his career with the SEC, Mr. Gottschall has investigated or supervised dozens of enforcement matters involving a variety of securities law violations, including:

Charges against an alternative fund manager for overcharging management fees and misleading investors about how it valued certain assetsthat ordered more than $6.4 million in monetary relief
An enforcement action against an Omaha investment adviser for failing to seek the most favorable mutual fund share classes in three funds that it managed
Fraud charges and an emergency asset freeze against the promoters of a $30 million Ponzi scheme
A financial fraud case against six executives of a Kansas-based insurance agency franchisor and lender

“Kurt’s deep knowledge of the securities laws, creative thinking, and extensive experience will be significant assets in his new role,” said Andrew J. Ceresney, Director of the SEC’s Enforcement Division. “The Denver office’s enforcement efforts have been immensely productive and I am sure Kurt’s leadership will only enhance their success.”

Julie Lutz, Director of the SEC’s Denver Regional Office, added, “Kurt is respected throughout the Denver Regional Office for his outstanding track record in producing significant enforcement cases, and he has been instrumental in developing the office’s Asset Management Unit into a strong vehicle for collaboration with exam staff and national unit personnel. He brings extraordinary judgment and analytical skill to leading the DRO’s talented enforcement staff.”

Mr. Gottschall said, “For the past 16 years, it has been a privilege to work with the talented, experienced, and dedicated staff of the Denver Regional Office. I am looking forward to leading the enforcement team in Denver as we continue our important mission of investor protection.”