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(Adds background on case, SEC comment)
By Sarah N. Lynch
WASHINGTON, Dec 16 (Reuters) - A unit of Deutsche Bank AG conceded that it misled investors and violatedsecurities laws and will pay more than $40 million to settlecharges that it misinformed clients about how it routed ordersto anonymous trading platforms known as dark pools, regulatorssaid on Friday.
The bank agreed to pay $37 million to settle charges fromfederal and New York state regulators, and an additional $3.25million to the Financial Industry Regulatory Authority (FINRA),Wall Street's self-funded regulator.
In settling with both the New York Attorney General and theU.S. Securities and Exchange Commission, Deutsche Bank alsoadmitted that its marketing materials about how it routed ordersto various dark pools were misleading. The problems were due toa computer coding error, according to the documents related tothat settlement.
FINRA's charges against the bank, meanwhile, revolved around"deficient disclosures" by the bank's own dark pool tradingplatform itself. The bank settled that matter without admittingor denying any wrongdoing.
"Deutsche Bank is pleased to have resolved these matters,"Deutsche spokeswoman Amanda Williams said in a statement.
"We believe that all concerns described in the settlements,which do not allege intentional wrongdoing or misconduct, havebeen remediated."
The SEC in recent years has been on the prowl for violationsof complex equity market structure rules that are designed toensure fairness for all investors.
Those cases have targeted exchanges, brokers and dark poolsfor a variety of problems, from misleading investors about theirservices, to giving some investors an edge by providing themwith faster access to trading data.
This marks the third joint case filed this year against abig bank by the SEC and New York in connection with dark pools.
Barclays and Credit Suisse previouslysettled charges in connection with misleading investors in darkpools, a type of alternative trading platform that is similar toan exchange, but with less price transparency.
But the SEC and New York's case against Deutsche isdistinct.
Unlike those two prior cases, which involved the banksmisleading investors in their own dark pools, Friday's main caseagainst Deutsche Bank centers on problems with its order routerknown as SuperX+.
Order routers are computers that decide where client ordersshould be sent in order to obtain the best possible execution.
The SEC and New York Attorney General Eric Schneidermanalleged that the bank marketed this router as having acompetitive edge because of its "dark pool ranking model," whichwas able to review multiple dark pool trading venues anddetermine which one would provide an investor with the bestdeal.
But a coding error that lasted from January 2012 throughFebruary 2014 led the bank to use stale data to rank the variousdark pools.
The stale data caused at least two dark pools not affiliatedwith Deutsche Bank to receive inflated rankings, and the SECsaid millions of orders would have been sent elsewhere by theSuperX+ if the data had been properly updated.
"Broker-dealer customers expect to be told if a routingprogram like Deutsche Bank's does not function properly, relieson stale data, and routes millions of orders contrary to thedescribed methodology," said Robert Cohen, the co-chief of theSEC Enforcement Division's market abuse unit, in a statement. (Reporting by Sarah N. Lynch; Editing by Lisa Von Ahn, DavidGregorio and Bill Rigby)
