Deutsche Bank Securities Inc. and a branch Registered Supervisor agreed to settle FINRA charges that they failed to prevent branch personnel from egregiously violating terms of contractual agreements the firm had with third-party investment advisers.  

Adviser Select Program.   Deutsche Bank offered its customers the opportunity to use a third-party investment adviser to manage their investments on a fee-based discretionary basis.  Each agreement that the firm entered into with an adviser contained a confidentiality clause prohibiting firm employees from using the third-party adviser’s portfolio recommendations for other clients. 

To ensure compliance with this provision, the firm instituted a written policy and procedure manual, that was distributed to firm employees, including Adrienne Barrett Tubridy, the Registered Supervisor sanctioned in this case by FINRA.  One policy prohibited firm personnel from shadowing adviser select accounts - i.e., monitoring investment transactions by advisers and copying those trades for their own accounts or the accounts of other Deutsche Bank customers. 

Unfortunately, the firm never implemented any specific systems to detect and prevent shadowing - i.e., (i) no exception reports were created to identify shadowing;  (ii) no applicable training was conducted;  and, (iii) no supervisory systems were put in place to monitor accounts for possible shadowing.

Even So, What Went Wrong.   At one branch office - the one where Ms. Tubridy was responsible for performing trade reviews - shadowing was egregious and continued for years.  And even though the firm didn't implement exception reports to identify shadowing, shadowed trades were flagged for other reasons, which required Tubridy to follow up - and she did, but only up to a point.

• During her trade reviews, Ms. Tubridy examined and approved shadowed trades on the exception reports.  She even made notations on certain trades that indicated she was aware of shadowing.  But she dropped the matter right there - i.e., she didn't follow up on the information and neglected to raise the issue with compliance or her supervisors.  

• By shadowing the advisers, firm RR's not only circumvented fee arrangements the firm had in place for the adviser select program, but they violated the provisions of confidentiality agreements prohibiting the use of the third-party investment advisers’ proprietary information. 

• FINRA somehow determined that the firm and involved RR's failed to pay a combined total of over $200,000 to third-party investment advisers. 

• Moreover, FINRA found that the firm failed to establish, maintain and enforce an adequate supervisory system to detect and prevent shadowing, and Tubridy failed to recognize and follow up on “red flags” of shadowing. 

Firm Finally Acts on Problem.   FINRA notes that once the firm did learn that shadowing had occurred - with Tubridy’s assistance - it conducted an extensive and immediate internal investigation across all branch offices to identify and halt any other shadowing activity. 

FINRA Sanctions.   FINRA fined the firm $350K, taking into account financial benefits the firm obtained, and the firm’s discovery, reporting, investigation and corrective measures are reflected in the sanctions.  Turbridy was fined $10K and a 10-day supervisory suspension.  She also was required to cooperate with FINRA in its prosecution of any other disciplinary action related to these events by, among other things, meeting with and being interviewed by FINRA staff without the need of staff to resort to FINRA Rule 8210, and testifying truthfully at any related hearing. 

This is FINRA Case #2008013864402.   [Disciplinary Actions for August 2011.]