Ex-Deutsche Bank Analyst to Pay $100K Penalty To Resolve SEC Charges Related to Rate Stock Certification

The Securities and Exchange Commission is accusing ex-Deutsche Bank (DB) research analyst Charles P. Grom of certifying a rating on a stock in a manner that was not in line with his personal view. According to the regulator, Grom certified that his research report on 3/29/12 about Big Lots was an accurate reflecting of what he honestly believed about the company and it securities even though in private communications with firm research and sales staff, he indicated that he decided not to downgrade the discount retailer from a “BUY” recommendation because he wanted to keep up his relationship with the company’s management. Now, Grom must pay a $100K penalty.

The SEC contends that Grom violated Regulation AC’s analyst certification requirement, which mandates that research analysts include a certification that the views expressed in a research report are an accurate reflection of what they believe about a company and its securities. The regulator said that Grom became worried about what he considered cautious comments by Big Lot executives when he and his firm hosted them during a non-deal roadshow the day before he certified the report at issue in March 2012.

Following the road show, Grom communicated with hedge fund clients about Big Lots. Four of the funds sold all of their position in the company’s stock.

According to SEC Enforcement Division Director Andrew J. Ceresney, analysts are not allowed to express views about a particular security in public that are in opposition to their private viewpoint. The division’s Associate Director, Antonia Chion, said that when research analysts who work for brokerage firms violate their legal obligation to put out research reports that are an accurate reflection of their personally-held views, this undermines the public’s faith in the research and its integrity.

Grom settled the SEC’s order and will pay a $100K and is banned from the securities industry for one year. He is not admitting to or denying the regulator’s findings.

The SSEK Partners Group is an institutional investor fraud law firm.

Read the SEC order (PDF)