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Deutsche Bank fined for misleading clients about hedge funds

Deutsche Bank said it relied on a rigorous vetting process in selecting hedge fund investments for its wealth management clients.

It turns out, the only funds Deutsche Bank evaluated were those that agreed to share money with the German lender. The allegation was laid out in a Thursday order from the SEC, which fined a U.S. unit of Deutsche Bank $500,000.

From 2009 through mid-2018, Deutsche Bank Trust Company Americas told investors in marketing materials that it had an in-house research group that used a multistep due diligence process. Left out of the disclosures was that the group limited its reviews to hedge funds that passed on management fees.

Deutsche Bank said it relied on a rigorous vetting process in selecting hedge fund investments for its wealth management clients.
The Deutsche Bank AG logo sits on the bank's headquarters in the financial district in Frankfurt, Germany, on Thursday, April 25, 2019. Deutsche Bank and Commerzbank AG ended talks on a historic tie-up, throwing the future of the lenders into question after a series of failed turnaround plans. Photographer: Alex Kraus/Bloomberg

The unit misled investors by highlighting that the research group performed “quantitative and qualitative due diligence” from an “extremely large universe” of asset managers, the SEC said. The unit agreed to settle the claims without admitting or denying the regulator’s findings.

The bank has amended its disclosures to reflect that it will only evaluate funds that agree to share fees, the SEC said.

A Deutsche Bank spokesman said the bank has updated its disclosures for further transparency.