Risk & Compliance

Analyst Fined $100K Over ‘Buy’ Rating on Stock

A Deutsche Bank analyst falsely certified that the views he expressed in a March 2012 research report on Big Lots accurately reflected his own beli...
Matthew HellerFebruary 18, 2016

A former Deutsche Bank analyst has been charged with maintaining a “buy” rating on the stock of retailer Big Lots even though he actually believed it should have been downgraded.

The U.S. Securities and Exchange Commission said Wednesday that Charles Grom, 41, falsely certified that the views he expressed in a March 2012 research report on Big Lots accurately reflected his own beliefs.

The day before the report was released, Grom had hosted a non-deal roadshow for Big Lots’ CEO and senior vice president of finance. After including a “buy” rating in the report, he allegedly told other Deutsche Bank employees he didn’t downgrade the stock because “I was trying to maintain, you know, my relationship with them.”

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To settle the SEC’s charges, the analyst, who worked for Deutsche Bank from June 2011 to February 2013, agreed to pay a $100,000 penalty. He will also be suspended from the securities industry for a year.

“When research analysts tell clients to buy or sell a particular security, the rules require them to actually mean what they say,” Andrew J. Ceresney, director of the SEC’s Enforcement Division, said in a news release. “Analysts simply cannot express one view publicly and the opposite view privately.”

According to the SEC, Grom was one of the most prominent and influential research analysts covering the consumer sector during his tenure at Deutsche Bank. He initiated coverage of Big Lots in September 2011, consistently giving the stock a “buy” rating.

On March 28, 2012, Grom hosted the roadshow for the Big Lots executives at Deutsche Bank’s Boston office. During the roadshow, the SEC said in an administrative order, Grom’s bullish view about the company changed, in part because of comments the executives made about its consumables business.

Later the same day, he allegedly spoke to several hedge fund clients, who subsequently sold their entire positions in Big Lots, but in the March 29 report, he maintained the “buy” rating.

“We just had them in town so it’s not kosher to downgrade on the heels of something like that,” Grom said in a conference call with Deutsche Bank research and sales personnel.