
SEC Suspends Deutsche Bank Research Analyst for “Not Meaning What He Said” - randomname2
https://www.sec.gov/news/pressrelease/2016-30.html
======
chollida1
The bloomberg coverage gives a bit of background on the analyst. Even though
there is supposed to be a "Chinese wall" between analysts and the investment
banking side there always has been, and continues to be, politics involved in
what an analyst can say.

This is illustrated from this quote from the linked article:

> Despite those concerns, the agency said, he maintained his “buy” rating and
> told colleagues on an internal call that “we just had them in town, so it’s
> not kosher to downgrade on the heels of something like that.”

The tension has always been how to allow analysts to say what then mean about
companies while at the same time keeping the company happy so that they can
earn investment banking fees from the same company for things like debt raises
or new issues.

Its very hard to convince a company to use your services while ignoring an
negative rating by an analyst.

Unfortunately this leads to getting a lot of double speak form analysts where
they might say one thing public ally but another thing privately to the buy
side, after all its usually the end game of a good analyst is usually to get a
job on the buy side. And you do that by creating a track record of being able
to pick alpha long and shorts.

[http://www.bloomberg.com/news/articles/2016-02-17/ex-
deutsch...](http://www.bloomberg.com/news/articles/2016-02-17/ex-deutsche-
bank-analyst-banned-over-rating-at-odds-with-opinion)

TL/DR Don't trust written reports by analysts. Trust slightly more what they
tell you over the phone. Trust completely what they tell you in a job
interview.

~~~
viraptor
> Even though there is supposed to be a "Chinese wall" between analysts and
> the investment banking side

Is that a SEC rule? I haven't heard of it and I'm interested in the details.

~~~
olympus
I'm pretty sure it's the same rule that outlaws insider trading. If the
analysts and investment bankers talked to each other they could potentially
cook up some crazy schemes: "Hey Joe, I just invested someone's money in
company X. Can you upgrade them to a BUY rating?" "Sure thing Bill, what's my
cut?" "10% of the increase?" "Sure, sounds fair." Or another scheme: "Hey Joe,
GM is a big client and is starting to get a little worried about TESLA. Can
you downgrade them?" "Sure thing Bill, let's put Elon in his place and keep
our big clients happy."

------
lifeisstillgood
The problem here is that "analyst" is not a profession, with a body able to
support anyone who steps out against their employer/other financial
relationship.

This guy kept himself employed, and betrayed a trust.

If Deutsche had to go to as much effort to fire him as they would to fire a
bank auditor, then he would be confident enough to say what he means. That's
why it's hard to fire certain roles

Edit Someone else makes the very good point - don't get advice on a company
from people being paid by that company

You need to pay for investment advice

------
PhantomGremlin
This stuff used to happen a lot back in the first dot com bubble. The poster
child at the time was Henry Blodget:

    
    
       ... Merrill Lynch e-mails in which Blodget gave
       assessments about stocks which allegedly conflicted
       with what was publicly published
    

Blodget agreed to a fine and a lifetime ban from the securities industry.[1]

But don't feel too sorry for Blodget. He later founded Silicon Alley Insider,
which became Business Insider, which was eventually sold for over $343
million. Henry probably made out OK on that.[2]

[1]
[https://en.wikipedia.org/wiki/Henry_Blodget#Fraud_allegation...](https://en.wikipedia.org/wiki/Henry_Blodget#Fraud_allegation_and_settlement)
[2]
[https://en.wikipedia.org/wiki/Business_Insider#Acquisition](https://en.wikipedia.org/wiki/Business_Insider#Acquisition)

------
RockyMcNuts
You edited the headline to make it sound like some kind of thoughtcrime.

The analyst came out of a non-deal roadshow meeting, told his proprietary
traders to sell everything, told his top hedge fund clients to sell,
maintained the buy rating, told his colleagues he maintained the buy rating to
keep the investment banking relationship.

from the release
[https://www.sec.gov/litigation/admin/2016/34-77150.pdf](https://www.sec.gov/litigation/admin/2016/34-77150.pdf)

16\. On March 28, 2012, Grom and DBSI hosted Big Lots’ Chief Executive Officer
and Senior Vice President of Finance at a non-deal roadshow (“NDR”) at DBSI’s
Boston office. Beginning at about 7:30 a.m. and continuing until about 3:15
p.m., the Big Lots executives held private meetings with DBSI clients. Grom
attended all of these meetings.

17\. Before the NDR, Grom was bullish on Big Lots: he believed the company’s
first quarter financial performance, particularly its first quarter comparable
store sales, would be strong, with comparable store sales “up four or five,
maybe six percent.” At some point early during the NDR, Grom’s view changed
and he ultimately concluded that Big Lots’ first quarter comparable stores
sales would increase by only two to three percent, a significant shift in
Grom’s view. Grom believed, and his financial models reflected, that even a
one percent change in Big Lots’ comparable store sales could significantly
impact its earnings per share. Grom became particularly concerned during the
NDR when Big Lots’ executives made what Grom believed to be cautious comments
about Big Lots’ consumables business, which comprised approximately twenty-
five to thirty percent of Big Lots’ total sales at the time.

18\. At 8:51 a.m. on March 28, 2012, shortly after the first NDR meeting had
ended, Grom called the DBSI trader responsible for trading Big Lots’ stock. At
9:31 a.m., within a minute of the market opening, the trader placed an order
to sell 25,000 shares of Big Lots’ stock, which he had purchased the day
before in a firm proprietary account.

19\. In the early afternoon on the day of the NDR, Big Lots’ Chief Executive
Officer abruptly asked Grom whether he was going to downgrade Big Lots stock.
At 1:23 p.m., Grom emailed one of his junior analysts back in New York, simply
stating, “this is gonna be hard.” Three minutes later, the junior analyst
responded, “uh oh.” At 1:26 p.m., Grom sent the junior analyst another email,
stating, “[p]retty clear that biz is just ok.”

20\. Beginning within minutes after the NDR had ended, Grom communicated with
several DBSI clients, including Hedge Fund A, Hedge Fund B, Hedge Fund C, and
Hedge Fund D.

After talking to Grom, all four of these DBSI clients subsequently sold their
entire positions in Big Lots stock

[details of sales omitted]

22\. On March 29, 2012, Grom issued a research report on Big Lots entitled
“Not All Is Good In Buckeye Land,” in which he reiterated his BUY rating. As
required by Regulation AC of the Exchange Act, Grom signed an Analyst
Certification that was included at the end of the report, which stated: “The
views expressed in this report accurately reflect the personal views of the
undersigned lead analyst(s) about the subject issuer and the securities of the
issuer.”

23\. On March 29, 2012, at 7:30 a.m., roughly two hours after his Big Lots
research report had been publicly disseminated, Grom spoke about Big Lots on
the DBSI morning conference call with firm research and sales personnel. Grom
said that he had maintained a BUY rating on Big Lots because “obviously that
we just had them in town so it’s not kosher to downgrade on the heels of
something like that.” Grom also said, “[B]ut more importantly than that, I
think there’s obviously time left in the quarter” and that he and his team was
“gonna do our homework on it” and “gonna be in front of ‘em.”

24\. Less than a month later, Grom repeated his assertion that he had not
downgraded Big Lots on March 29, 2012 because he wanted to maintain his
relationship with Big Lots’ management.

~~~
tremon
Came here to say the same thing. The HN headline is completely off the mark.

------
xlm1717
Strange phrasing used by the SEC. Would be better to say they charged the
analyst with cronyism.

~~~
ptaipale
Yep. Or at least say "they charged the analyst with saying something he was
himself thinking not true" \- if you really don't want to use the quite clear
headline that SEC provides: _SEC: Deutsche Bank Analyst Issued Stock Rating
Inconsistent With Personal View_

In colloquial use, we would say the analyst was fired for lying.

------
Nutmog
If your job is making predictions, then surely your performance can easily be
measured by the outcomes of those predictions. That way, not saying what you
think would hurt your bonus or your company's reputation through poor
performance. Perhaps that's only effective at combating widespread dishonesty
and an isolated case like this wouldn't affect his overall accuracy much.

~~~
tamana
The guy ran a pump and dump scam. His reputation with the suckers doesn't
matter.

------
pm24601
Too bad we can't apply this standard to politicians and judges :-(

