We missed out on this little tidbit late last week. Deutsche Bank Securities, Inc. (DBSI) was fined $1.275 million by NYSE Regulation in two separate actions involving conflicts of interest in its published research, and an employee who accessed privileged information from a former employer.According to NYSE Regulation, from July 2002 to June 2004 DBSI did not include disclosures of conflicts of interest on numerous published research reports. The primary reason for this was that "the firm did not devote sufficient resources to ensure that the significant task of populating the disclosure databases housing conflict of interest information, which was performed manually by a handful of employees ... was accomplished on timely basis" according to the regulator.
The associated fine of $950,000 highlights the value in automating a manual control that is clearly broken. Even more alarming is the second reason that DBSI was penalized.
From November 2001 through January 2003 a DBSI employee used a username and password obtained in a previous position to access confidential information from his previous employer. NYSE doesn't specify the nature of the stolen data, but does note that the employee accessed the data more than 200 times and used it in his work developing DBSI's indices. The employee performed this systematic corporate espionage and provided data at the request of his colleagues and supervisor.
As surprising as this behavior is, it is even more disconcerting that within the technologically sophisticated securities industry, a firm was allowing a former employee access to sensitive information for over a year! This theft of confidential and proprietary information, along with a handful of trading violations netted the firm a penalty of $325,000.