Dealer fined US$1 million for sloppy record keeping of proxy votes

NYSE Regulation announced that it has censured and fined Deutsche Bank Securities Inc. US$1 million (US$1.15 million) for operational deficiencies and supervisory violations concerning the submission of proxy votes.

It found that from March 1998 to November 2003, Deutsche Bank failed to timely reconcile stock records on beneficial ownership in connection with proxy voting, issued duplicate requests for proxy voting instructions for securities held in certain omnibus accounts, which resulted in duplicate votes in some instances, failed to transmit accurate information to its proxy service provider on numerous occasions, voted more shares than it was entitled to vote (“over-voting”) in proxy matters in numerous instances and did not adequately retain proxy solicitation records.

The firm also failed to reasonably supervise and control its business activity, and failed to establish a separate system of follow-up and review, to comply with the federal securities laws and NYSE rules.

Operational and supervisory deficiencies of the proxy function were first detected by the Member Firm Regulation Division of NYSE Regulation, and then referred to the Division of Enforcement for further investigation.

In settling these charges, Deutsche Bank Securities Inc. neither admitted nor denied the charges.

“Proxy over-voting creates a serious risk that shareholders’ votes will not be counted,” said Susan Merrill, chief of enforcement, NYSE Regulation. “Shareholders are entitled to expect that even in routine matters, the proxy process has been properly supervised by their broker-dealer.”

For 2003, NYSE Member Firm Regulation identified 12 instances, out of 15 tested, in which the firm over-voted. The over-votes submitted by the firm ranged from 16,710 shares to 4,304,284 shares. NYSE Enforcement’s investigation also disclosed that, in 2002, the firm over-voted in 11 instances out of 12 tested. The over-votes submitted by the firm ranged from 31 shares to 4,488,662 shares.

However, NYSE Enforcement’s investigation has not disclosed any instance in which an over-vote improperly shifted the balance of a proxy matter or any instance in which a shareholder who attempted to vote his or her shares was disenfranchised and lost his or her vote.

NYSE Regulation did note subsequent improvements by the firm including the implementation of a process to appropriately net long and short positions within a single account; the preparation of written operational and supervisory procedures for its proxy area, which were put into effect; the reinstatement of its subscription to the proxy service provider’s over-voting reporting service; the re-setting of the provider’s systems platform to prevent further mailing of duplicate proxy material. A subsequent review by NYSE Member Firm Regulation confirmed these remedial procedures were in effect and functioning. The firm also developed a process to appropriately net across all the accounts owned by a single legal entity, and devoted additional staff to the proxy function.