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Deutsche Bank Fined Over Misleading Hedge Fund Disclosures
by Howard Haykin
In marketing materials, requests for proposal (RFPs), and other related documents provided to clients, DBTCA disclosed that it relies on an independent, in-house research group (“Research Group”) that uses a multi-step due diligence process to identify, evaluate, and select best-in-class mutual funds, ETFs and alternative products, including Hedge Funds, selected from a broad database of asset managers.
WHAT WENT WRONG. However, according to the SEC, from as early as 2009 through mid-2018, DBTCA failed to also disclose that the Research Group limited its review and selection of Hedge Funds to only those managers that agreed to pay a portion of its management fee to DBTCA - payments referred to as “retrocessions.”
Moreover, …
- DBTCA’s advisory agreements disclosed that DBTCA “may” receive all or a portion of management fees that pooled investment vehicles charge, when, in fact, the payment of retrocessions was a requirement for all Hedge Funds that DBTCA recommended.
- Though each client who invested in Hedge Funds were advised that DBTCA would receive from such Hedge Funds the aforementioned retrocession, they were not told that DBTCA recommended only those Hedge Funds that agreed to pay retrocessions.
For further details on this case, click on … SEC Administrative Proceeding File No. 3- 19154.
