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Dissenting Statement in the Matter of Deutsche Bank AG, Regarding WKSI

Commissioner Kara M. Stein

May 4, 2015

I respectfully dissent from the Commission’s Order (“Order”), approved on May 1, 2015, by a majority of the Commission.[1] The Order grants Deutsche Bank AG a waiver from ineligible issuer status triggered by a criminal conviction of its subsidiary, DB Group Services (UK) Ltd. (collectively with Deutsche Bank AG, “Deutsche Bank”), for manipulating the London Interbank Offered Rate (“LIBOR”), a global financial benchmark.[2] This waiver will allow Deutsche Bank to maintain its well-known seasoned issuer (“WKSI”) status, which would have been automatically revoked as a result of its criminal misconduct absent a Commission waiver.

Created by the Commission as part of the Securities Offering Reforms of 2005, WKSI status is available “for the most widely followed issuers representing the most significant amount of capital raised and traded in the United States.”[3] This status confers on the largest companies certain advantages over smaller companies. WKSIs are granted nearly instant access to investors through the capital markets. WKSIs enjoy greater flexibility in their public communications and a streamlined registration process with less oversight than smaller businesses. For example, unlike smaller businesses, the WKSI issuer does not have to wait for the Division of Corporation Finance to review and declare a registration statement effective prior to selling financial products to investors.[4] WKSI companies also enjoy a number of other privileges related to the payment of fees.

With these WKSI advantages comes a modicum of responsibility. WKSIs must meet the very low hurdle of not being ineligible. This means that, among other things, they have not been convicted of certain felonies or misdemeanors within the past three years.[5] In granting this waiver, the Commission continues to erode even this lowest of hurdles for large companies, while small and mid-sized businesses appear to face different treatment.[6]

Deutsche Bank’s illegal conduct involved nearly a decade of lying, cheating, and stealing. This criminal conduct was pervasive and widespread, involving dozens of employees from Deutsche Bank offices including New York, Frankfurt, Tokyo, and London. Deutsche Bank’s traders engaged in a brazen scheme to defraud Deutsche Bank’s counterparties and the worldwide financial marketplace by secretly manipulating LIBOR.[7] The conduct is appalling. It was a complete criminal fraud upon the worldwide marketplace.

Prior Commissions sensibly did not grant WKSI waivers for criminal misconduct. At least, that was the practice until September 19, 2013, when Commission staff granted a waiver to a large institution that pleaded guilty to criminal fraud.[8] This Commission granted another waiver on April 25, 2014, to another large institution that had also been criminally convicted of manipulating LIBOR.[9] A majority of this Commission, with this current action, continues the trend by granting its third waiver for criminal conduct at a large institution in a little less than two years. It is safe to assume that these waiver requests will continue to roll in, as issuers are now emboldened by an unofficial Commission policy to overlook widespread and serious criminal conduct — and ensure that the largest companies retain their array of advantages in our capital markets.

It is unclear to me how this waiver can be granted, for reasons substantially similar to those I outlined in my dissent regarding another institution involved in LIBOR manipulation.[10] Among other factors, the egregious criminal nature of the conduct and the duration of the manipulation (almost a decade) weigh heavily in my mind when considering this waiver. Additionally, Deutsche Bank is a recidivist, and its past conduct undermines its current promise of future good conduct. Since 2004, Deutsche Bank has, among other violations, a criminal admission of wrongdoing connected to promoting tax shelters,[11] a settlement involving misleading investors about auction rate securities,[12] and a violation against its investment bank for improperly asserting influence over research analysts.[13] Deutsche Bank requested and was previously granted a WKSI waiver in 2007 and 2009.

This criminal scheme involving LIBOR manipulation was designed to inflate profits, and it was effective. It created the impression that Deutsche Bank was more creditworthy and profitable than it actually was. Accordingly, the conduct affected its financial results and disclosures. Because LIBOR plays such an important role in the worldwide economy, manipulation of it goes to the heart of many aspects of Deutsche Bank’s disclosures. Interest rates represented to clients and the public also were clearly false. Based on this conduct, I do not find any basis to support the assertion that Deutsche Bank’s culture of compliance is dependable, or that its future disclosures will be accurate and reliable.

Finally, Deutsche Bank has not shown good cause for receiving a waiver from automatic disqualification, in this, its third WKSI waiver request in eight years. I am unable to conclude that Deutsche Bank’s culture of compliance and the reliability and accuracy of its future disclosures establishes good cause for a waiver. As the U.S. Commodity Futures Trading Commission’s (“CFTC”) Director of Enforcement noted: “Deutsche Bank’s culture allowed such egregious and pervasive misconduct to thrive.”[14]

For all of these reasons, I cannot support the Commission’s latest waiver.

In addition, the Commission adopted rules disqualifying felons and other “Bad Actors” from Rule 506[15] offerings on July 10, 2013.[16] Based on the criminal conduct in this case, I expected to receive a request from Deutsche Bank AG for a waiver from the automatic disqualification contained in Rule 506.[17] After all, the final CFTC order was “based on a violation of any law that prohibits fraudulent, manipulative, or deceptive conduct.”[18] It should therefore trigger an automatic disqualification absent a waiver.

However, based on a loophole contained in Rule 506(d)(2)(iii), the CFTC has intervened and prevented the bad actor disqualification question from even coming before the Securities and Exchange Commission. The CFTC saw fit to opine on the SEC’s Rule 506 jurisprudence about whether Deutsche Bank AG should receive a waiver from automatic disqualification under SEC rules. It is unclear to me what, if any, analysis went into this decision and what prompted the CFTC to insert language into its final order stating that a bad actor disqualification “should not arise as a consequence of this Order.”[19] The implications of the CFTC’s actions here — and in other actions[20] — are deeply troubling. The Commission should closely review this provision and how it is being used.

[1] In the Matter of Deutsche Bank AG, Order under Rule 405 of the Securities Act of 1933, Granting a Waiver from Being an Ineligible Issuer, available at

[2] For more information on the statements of facts, plea agreement, and deferred prosecution agreement related to the LIBOR manipulation, see “Deutsche Bank's London Subsidiary Agrees to Plead Guilty in Connection with Long-Running Manipulation of LIBOR,” available at

[3] See Division of Corporation Finance’s Revised Statement on Well-Known Seasoned Issuer Waivers (Apr. 24, 2014), available at

[4] Id.

[5] See Rule 405 of the Securities Act of 1933 (the “Securities Act”) (17 C.F.R. 230.405).

[6] A review of WKSI waivers granted since August 2013, reveals a total of 12 such waivers granted, 100% of which went to large financial institutions. See Division of Corporation Finance, available at This is precisely the concern I expressed a year ago in a dissenting statement from another waiver. See Dissenting Statement In the Matter of Royal Bank of Scotland Group, plc, Regarding Order Under Rule 405 of the Securities Act of 1933, Granter a Waiver from Being an Ineligible Issuer (Apr. 28, 2014), available at (“I fear that the Commission’s action to waive our own automatic disqualification provisions arising from RBS’s criminal misconduct may have enshrined a new policy—that some firms are just too big to bar.”).

[7] See Deutsche Bank Services (UK) Ltd. Statement of Facts, available at Numerous Deutsche Bank derivatives traders communicated their desire to manipulate LIBOR to Deutsche Bank pool and money market derivatives traders, causing the pool and money market derivatives traders to submit false and misleading LIBOR contributions. These derivatives traders would then enter into derivatives transactions tied to LIBOR with unsuspecting counterparties who were unaware of Deutsche Bank’s criminal manipulation of LIBOR going on behind the scenes. These counterparties included universities, charitable organizations, and other financial institutions.

[8] See Letter from the Division of Corporation Finance to Mr. Steven Slutzky (Sep. 19, 2013) available at regarding “UBS-AG — Waiver Request of Ineligible Issuer Status under Rule 405 of the Securities Act.”

[9] See Order Under Rule 405 of the Securities Act of 1933, Granting a Waiver From Being an Ineligible Issuer, In the Matter of Royal Bank of Scotland Group, plc, Rel. No. 33-9578, (Apr. 25, 2014) available at

[10]See Dissenting Statement In the Matter of Royal Bank of Scotland Group, plc, Regarding Order Under Rule 405 of the Securities Act of 1933, Granter a Waiver from Being an Ineligible Issuer (Apr. 28, 2014), available at

[11] See “Deutsche Bank to Pay More Than $550 Million to Resolve Federal Tax Shelter Fraud Investigation,” available at

[12] See “SEC Finalizes ARS Settlements With Bank of America, RBC and Deutsche Bank, Providing Over $6 Billion in Liquidity to Investors,” available at

[13] See “SEC Sues Deutsche Bank Securities Inc. for Research Analyst Conflicts of Interest and Failure to Timely Produce All E-Mail,” available at

[14] U.S. Commodity Futures Trading Commission, Press Release “Deutsche Bank to Pay $800 Million Penalty to Settle CFTC Charges of Manipulation, Attempted Manipulation, and False Reporting of LIBOR and Euribor,” (Apr. 23, 2015), available at

[15] Rule 506 of Regulation D is considered a safe harbor for the private offering exemption of Section 4(a)(2) of the Securities Act. (17 C.F.R. 230.506).

[16] Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“the Dodd-Frank Act”) required the Commission to adopt rules that disqualify certain securities offerings from reliance on Rule 506 of Regulation D. See Disqualification of Felons and Other “Bad Actors” from Rule 506 Offerings, Release No. 33-9414 (July 10, 2013), available at

[17] See Rule 506(d)(1)(iii) of the Securities Act of 1933. (17 C.F.R. 230.506(d)(1)(iii)).

[18] See id.

[19] In the Matter of Deutsche Bank AG, CFTC Docket No. 15-20, at 44 (Apr. 23, 2015), available at

[20] See, e.g., In the Matter of JPMorgan Chase Bank, NA, CFTC Docket No. 14-01, at 18 (Oct. 13, 2013), available at; CFTC v. Royal Bank of Canada, 13 Civ 2497, at 14 (Dec. 18, 2014), available at

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