The Securities and Exchange Commission recently filed an enforcement action against a Deutsche Bank research analyst, Charles P. Grom, for his certification of a buy rating on the stock of Big Lots, a discount retailer, even though his opinion had grown bearish after he became privy to negative information from discussions with company executives.
The SEC’s investigation found that Grom certified that his buy recommendation on Big Lots accurately reflected his own beliefs about the company and its securities. However, according to the SEC, in private internal discussions with Deutsche Bank, Grom came clean and admitted that the true reason he did not downgrade his recommendation was to preserve his relationship with Big Lots.
The SEC further claims that during an internal conference call with Deutsche Bank’s research and sales personnel within hours after the publication of his report, Grom explained that he maintained a buy rating on the stock because: “we just had them in town so it’s not kosher to downgrade on the heels of something like that.”
While Grom’s attempt at civility may have been commendable, the SEC was not swayed. Stating the obvious — or what should be painfully obvious to any securities research analyst — Andrew J. Ceresney, Director of the SEC’s Enforcement Division, stated: “When research analysts tell clients to buy or sell a particular security, the rules require them to actually mean what they say. Analysts simply cannot express one view publicly and the opposite view privately.” And who said the federal securities laws were complex.
Grom, on a neither admit nor deny basis, settled the SEC’s charge that he violated the analyst certification requirement of Regulation AC, agreeing to a 1 year suspension from the securities industry and to pay a civil penalty of $100,000.
Hey, with such extremely difficult facts to defend against, I guess the “it’s not Kosher” defense was worth a shot.
David Chase, a SEC lawyer and securities attorney, handles SEC defense and FINRA investigations nationwide, and is principal of the Law Firm of David R. Chase, a securities law firm, located in Fort Lauderdale, Florida. Mr. Chase also represents investors who are victims of stock fraud and stockbroker negligence in cases against securities brokerage firms.
For a confidential, no-cost consultation with Mr. Chase, call toll-free at: 800-760-0912, or send him an e-mail: david@davidchaselaw.com. The firm’s website is: www.securitiesfrauddefense.net.
