Deutsche Asset Management agreed not to contest the SEC charges but neither admitted nor denied its findings, which allege that the company failed to disclose to its clients that it was working on behalf of HP to pass the merger. In addition to the fine, Deutsche Bank agreed to avoid violations in the future.
"Voting client proxies is a critical function of an investment adviser," SEC Enforcement Director Stephen M. Cutler said in a statement. "If the adviser has a material conflict of interest, it must tell its clients about the conflict before voting so the clients can decide whether they want to vote the proxies themselves, allow the adviser to vote them, or make some other arrangement, such as having a shareholder service vote the proxies."
The settlement brings to a close one of the last unresolved issues that stem from HP's controversial acquisition of Compaq. The dealin May 2002 after a that pitted management against members of the Hewlett and Packard families.
HP said at the time of the March 19 shareholder vote that it had won a. showed that 838 million shares were voted in favor of the deal, with 793 million shares voted against the deal--a difference of a little less than 3 percent.
According to the SEC order that brought charges, HP retained Deutsche Bank's investment banking division in January 2002 to assist the merger, but as part of a confidentiality agreement with HP, the bank did not publicly disclose that it was working for HP.
HP disclosed in April 2002 that the SEC wasthe matter.
In a statement, an SEC official said the agency did not find that the relationship affected Deutsche Bank's decision to switch its votes in favor of the deal, but that it should have disclosed the conflict to its clients.
"The order does not find that the outcome of (Deutsche Asset Management's) proxy vote was affected by Deutsche Bank's investment banking relationship with HP," said Helane L. Morrison, the district administrator of the SEC's San Francisco District Office. "Rather, the order emphasizes that the proxy voting process was tainted by the failure to disclose the conflict. The message is that the process matters."
The circumstances that surround Deutsche Bank's change of heart served as the partial basis for, which seeks to overturn the proxy vote. A Delaware judge in April 2002, paving the way for the deal to close.
In athat was leaked to the San Jose Mercury News, HP CEO Carly Fiorina told company CFO Bob Wayman that HP might "have to do something extraordinary" to sway Deutsche Bank and another large shareholder. Fiorina later testified that the company did nothing improper.
An HP representative said the company had already been vindicated by the Delaware court that dismissed Walter Hewlett's suit.
"The SEC order concerns Deutsche Bank's internal processes and not the conduct of HP or any of its officers," a company representative said. "The order also finds (that) Deutsche Bank's conduct did not affect the outcome of the proxy contest. The Delaware Chancery Court heard testimony on all actions taken by HP in connection with Deutsche Bank's vote and determined that HP acted properly."