Exclusive: Japan regulator probing Deutsche Bank entertainment of pension clients - sources

Mon Sep 9, 2013 6:58am EDT
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By Nathan Layne

TOKYO (Reuters) - Japan's securities market watchdog is investigating whether Deutsche Bank AG employees provided excessive entertainment to Japanese pension fund executives in breach of regulations, sources with knowledge of the matter said.

The Securities and Exchange Surveillance Commission (SESC) found evidence of potential infractions during a regular audit of Deutsche Securities Inc, the German bank's investment banking arm in Tokyo, said the sources, who spoke on condition they not be identified because the investigation is ongoing.

The employees had booked large expenses for entertainment involving pension fund executives, they said. This raised red flags for the regulators because the pension fund executives involved are legally considered public employees, subject to anti-bribery statutes, since they handle part of the national pension scheme.

Deutsche had already started its own investigation into the matter before the SESC began its audit in May, and has stopped marketing directly to such pension funds as part of a review of its sales and compliance practices, sources said.

The bank's efforts to address the problem could be a mitigating factor when the SESC makes a decision in coming weeks on what action to take. It is possible the regulator will not pursue public sanctions, which could range from an order to improve compliance to harsher penalties, the sources said.

Details of the alleged expenses, including the amounts spent and the identities of the pension fund executives, were not immediately available. The sources said the expense reports of a handful of Deutsche employees who market products and strategies to pension funds are being scrutinized as part of the probe.

The SESC has put employee pension funds under the spotlight since Tokyo-based money manager AIJ Investment Advisors was shut down by regulators and its top executive arrested for defrauding pensioners out of more than $1 billion in 2012. The scandal triggered an industry-wide review by regulators of companies that manage pension money that is continuing.

The SESC is also checking the entertainment of pension fund clients in a regular inspection at Goldman Sachs that began last month, the sources said.   Continued...

A logo of Deutsche Bank AG is seen in Tokyo September 9, 2013. REUTERS/Toru Hanai