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Deutsche Bank's (DB) DWS Fined $25M for ESG & ALM Violations
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Deutsche Bank AG’s (DB - Free Report) subsidiary, DWS Investment Management Americas Inc. (DWS) has been charged a total penalty of $25 million by Securities and Exchange Commission (SEC) in two separate enforcement actions. The registered investment adviser has been charged for materially misleading statements regarding its use of Environmental, Social and Governance (ESG) factors and committing anti-money laundering (AML) violations.
Per SEC’s findings, DWS made misleading statements about how it used ESG factors in its research and investment recommendations for its ESG integrated products, with certain actively managed mutual funds as well as separately managed accounts.
SEC stated that DWS claimed to be a leader in ESG and followed certain policies for integrating ESG factors in its investments. However, it was seen that from August 2018 until late 2021, DWS failed to satisfactorily implement few provisions of its global ESG integration policy. Also, DWS failed to adopt and implement policies and procedures to ensure accuracy of its public statements about ESG integrated products.
The Deputy Director of SEC’s Division of Enforcement, Sanjay Wadhwa, said, “Whether advertising how they incorporate ESG factors into investment recommendations or making any other representation that is material to investors, investment advisers must ensure that their actions conform to their words.”
DWS agreed to pay a penalty of $19 million pursuant to SEC’s cease and desist order regarding its ESG mis-statements.
Per Wall Street Journal’s article, a spokesperson at DWS stated that the firm has already initiated actions to address the shortcomings in its processes and procedures as recognized by SEC’s order.
In another enforcement action, SEC found that the mutual funds advised by DWS failed to develop and implement a reasonably designed AML program. SEC further stated that DWS did not have policies and procedures to detect and prevent money laundering activities and to train its staff on AML issues specific to its business.
The Director of SEC’s Division of Enforcement, Gurbir S. Grewal, stated, “The SEC’s order finds that DWS advised mutual funds with billions of dollars in assets yet failed to ensure that the funds had an AML program tailored to their specific risks, as required by law.”
He further added, “Importantly, those AML obligations require mutual funds to establish and implement individualized programs to detect and prevent money laundering and terrorism financing. I congratulate the Asset Management Unit for bringing this important mutual fund AML enforcement action.”
SEC’s cease and desist order charged DWS with a penalty of $6 million regarding its AML violations.
Such litigation expenses are likely to increase the company’s cost base. Earlier this month, DB witnessed a probe by Federal Financial Supervisory Authority following its failure to resolve software issues at its retail unit, Postbank.
Further, due to the nature of its business, Deutsche Bank is involved in litigation, arbitration and regulatory proceedings. Hence, the bank shouldered significant legal settlement costs in the past, which adversely impacted its financials. Hence, any higher legal charges are expected to affect its bottom-line growth in the near term.
Shares of DB have gained 5.1% on NYSE over the past three months compared with the industry’s growth of 3%.
Last week, a lawsuit has been filed in the New York state court against Morgan Stanley (MS - Free Report) by private equity firms Certares Management LLC and Knighthead Capital Management LLC. The firms claim that MS used deceptive practices in relation to a credit agreement investment for a luxury high-speed rail line.
The firms are seeking at least $750 million in damages from Morgan Stanley. Certares and Knighthead claim that MS illicitly restructured a deal by which they invested in a loan to Miami-based Brightline Holdings.
Last month, The Goldman Sachs Group, Inc. (GS - Free Report) was charged with a civil penalty of $5.5 million, per Commodity Futures Trading Commission’s (“CFTC”) order. The order required GS to cease and desist from committing future violations of Commodity Exchange Act and CFTC’s record-keeping provisions.
Per CFTC’s findings, GS violated the provisions of a previous order, and failed to appropriately record and retain certain audio files.
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Deutsche Bank's (DB) DWS Fined $25M for ESG & ALM Violations
Deutsche Bank AG’s (DB - Free Report) subsidiary, DWS Investment Management Americas Inc. (DWS) has been charged a total penalty of $25 million by Securities and Exchange Commission (SEC) in two separate enforcement actions. The registered investment adviser has been charged for materially misleading statements regarding its use of Environmental, Social and Governance (ESG) factors and committing anti-money laundering (AML) violations.
Per SEC’s findings, DWS made misleading statements about how it used ESG factors in its research and investment recommendations for its ESG integrated products, with certain actively managed mutual funds as well as separately managed accounts.
SEC stated that DWS claimed to be a leader in ESG and followed certain policies for integrating ESG factors in its investments. However, it was seen that from August 2018 until late 2021, DWS failed to satisfactorily implement few provisions of its global ESG integration policy. Also, DWS failed to adopt and implement policies and procedures to ensure accuracy of its public statements about ESG integrated products.
The Deputy Director of SEC’s Division of Enforcement, Sanjay Wadhwa, said, “Whether advertising how they incorporate ESG factors into investment recommendations or making any other representation that is material to investors, investment advisers must ensure that their actions conform to their words.”
DWS agreed to pay a penalty of $19 million pursuant to SEC’s cease and desist order regarding its ESG mis-statements.
Per Wall Street Journal’s article, a spokesperson at DWS stated that the firm has already initiated actions to address the shortcomings in its processes and procedures as recognized by SEC’s order.
In another enforcement action, SEC found that the mutual funds advised by DWS failed to develop and implement a reasonably designed AML program. SEC further stated that DWS did not have policies and procedures to detect and prevent money laundering activities and to train its staff on AML issues specific to its business.
The Director of SEC’s Division of Enforcement, Gurbir S. Grewal, stated, “The SEC’s order finds that DWS advised mutual funds with billions of dollars in assets yet failed to ensure that the funds had an AML program tailored to their specific risks, as required by law.”
He further added, “Importantly, those AML obligations require mutual funds to establish and implement individualized programs to detect and prevent money laundering and terrorism financing. I congratulate the Asset Management Unit for bringing this important mutual fund AML enforcement action.”
SEC’s cease and desist order charged DWS with a penalty of $6 million regarding its AML violations.
Such litigation expenses are likely to increase the company’s cost base. Earlier this month, DB witnessed a probe by Federal Financial Supervisory Authority following its failure to resolve software issues at its retail unit, Postbank.
Further, due to the nature of its business, Deutsche Bank is involved in litigation, arbitration and regulatory proceedings. Hence, the bank shouldered significant legal settlement costs in the past, which adversely impacted its financials. Hence, any higher legal charges are expected to affect its bottom-line growth in the near term.
Shares of DB have gained 5.1% on NYSE over the past three months compared with the industry’s growth of 3%.
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Currently, DB carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Financial Misconduct by Other Firms
Last week, a lawsuit has been filed in the New York state court against Morgan Stanley (MS - Free Report) by private equity firms Certares Management LLC and Knighthead Capital Management LLC. The firms claim that MS used deceptive practices in relation to a credit agreement investment for a luxury high-speed rail line.
The firms are seeking at least $750 million in damages from Morgan Stanley. Certares and Knighthead claim that MS illicitly restructured a deal by which they invested in a loan to Miami-based Brightline Holdings.
Last month, The Goldman Sachs Group, Inc. (GS - Free Report) was charged with a civil penalty of $5.5 million, per Commodity Futures Trading Commission’s (“CFTC”) order. The order required GS to cease and desist from committing future violations of Commodity Exchange Act and CFTC’s record-keeping provisions.
Per CFTC’s findings, GS violated the provisions of a previous order, and failed to appropriately record and retain certain audio files.