Deutsche Bank Securities submitted a letter of acceptance, waiver, and consent after the Financial Industry Regulatory Authority (FINRA) entered findings that the firm failed to deliver on time, or failed to ensure that its service provider delivered on time, prospectuses to customers who purchased mutual funds, when in many instances the firm's customers who should have received a prospectus within three business days of the transaction did not. FINRA also found that the firm failed to deliver preliminary IPO prospectuses to certain customers who indicated interest in initial public offerings (IPOs). Deutsche Bank Securities was censured and fined $125,000 after FINRA took into account the fact that the firm self-reported the failures to deliver preliminary IPO prospectuses, self-reported to FINRA that its Global Markets Division did not deliver preliminary IPO prospectuses to certain customers, and took remedial action to correct the non-delivery of the prospectuses.
A prospectus is a document that discloses important information about an investment. It typically provides investors with material information about mutual funds, stocks, bonds, and other investments. Such information generally includes a description of the company's business, financial statements, biographies of officers and directors, detailed information about their compensation, any litigation that is taking place, a list of material properties, and any other material information. In the case of an initial public offering (NYSEARCA:IPO), a prospectus is required to be delivered by underwriters or brokerage firms to potential investors.
Regarding the mutual fund prospectuses, FINRA's findings stated that Deutsche Bank Securities' clearing firm contracted with a third-party service for the delivery of mutual fund prospectuses for all the clearing firm's introducing brokers, including the Deutsche Bank Securities. On a daily basis, the clearing firm provided the service provider with electronic information pertaining to mutual fund transactions requiring delivery of a prospectus to the firm's customers - they also provided daily and monthly reports to Deutsche Bank Securities. The clearing firm also provided Deutsche Bank Securities with a daily report that identified late prospectus deliveries, including the number of days late and the reason for delay, but the report was never reviewed. FINRA's findings also stated that because of Deutsche Bank Securities' failure to deliver prospectuses on time to a number of customers who purchased mutual funds, these customers were not provided with important information about these products by settlement date. In addition, FIRNA's findings included that the firm failed to implement and maintain a supervisory system and written supervisory procedures (WSPs) reasonably designed to ensure that mutual fund prospectuses were being delivered on a timely basis. Deutsche Bank Securities' WSPs did not require review of the reports provided by its clearing firm that identified late prospectus deliveries and did not require firm personnel to communicate with the service provider. Instead, Deutsche Bank Securities relied upon its clearing firm to ensure the timely delivery of mutual fund prospectuses.
Regarding the IPO prospectuses, FINRA found that Deutsche Bank Securities failed to deliver preliminary IPO prospectuses to customers interested in IPOs. The main cause was the failure of employees within the firm's Global Markets Division to utilize the electronic system designed to ensure delivery of preliminary prospectuses. Because of the Deutsche Bank Securities' failure to deliver preliminary IPO prospectuses to a number of customers interested in purchasing shares in IPOs, these customers were not provided with important disclosures about these products until after they had purchased the shares. FINRA also found that Deutsche Bank Securities was required to establish and maintain a supervisory system and WSPs reasonably designed to monitor and ensure the timely delivery of IPO prospectuses. The Deutsche Bank Securities' systems and procedures were not reasonably designed to ensure that preliminary IPO prospectuses were being delivered to every customer, and therefore failed to implement and maintain such a supervisory system and WSPs.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. Please see our Instablog profile (left column) for ways to contact us and get answers to any of your questions about this blog post and/or any related matter.