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The Securities and Exchange Commission slapped Deutsche Bank AG with a $750,000 fine Tuesday for concealing its work advising Hewlett-Packard Co. during last year’s contested merger with Compaq Computer Corp. The SEC faulted Deutsche Asset Management Inc. for voting 17 million proxy shares in favor of the merger on behalf of its clients without disclosing that it stood to earn $2 million in consulting fees when the deal was consummated. The SEC’s enforcement order also offers a peek into how Hewlett-Packard swung those votes in its favor. “The clients were deprived of a conflict-free vote,” said Robert Mitchell, assistant district administrator for the SEC’s San Francisco office. Hewlett-Packard, which signed a confidentiality agreement with Deutsche Bank covering the consulting contract, was not fined. The union of Palo Alto-based Hewlett-Packard and Columbus, Ohio’s Compaq was one of the more closely watched mergers in U.S. history. Opposition was spearheaded by Walter Hewlett, son of one of Hewlett-Packard’s founders, which led to a high-profile trial in the Delaware Court of Chancery featuring testimony from Hewlett and Hewlett-Packard CEO Carleton Fiorina. Chancellor William Chandler III approved the deal. Chandler mentioned the consulting work in his April 27, 2002, order approving the proxy vote by Hewlett-Packard shareholders that endorsed the merger. The Federal Trade Commission had approved the merger March 6, 2002. The proxy vote was controversial and central to the SEC’s allegations. Deutsche Asset Management consented to the fine without admitting wrongdoing. It was widely known that Deutsche Bank and Hewlett-Packard had a significant business relationship. But it was not known until after the proxy vote that the two signed a Feb. 22, 2002, agreement for consulting work directly related to the merger. On behalf of its clients, DeAM initially cast 17 million votes against the merger. But DeAM’s Proxy Working Group later switched direction after a presentation by senior Hewlett-Packard executives. That led to the proxy vote challenge from dissident board member Hewlett. According to the SEC, at least two members of DeAM’s Proxy Working Group knew about the bank’s deal with Hewlett-Packard when the group initially voted against the merger. The reconsideration was initiated by two senior Deutsche Bank investment bankers. After DeAM’s then-chief investment officer was contacted about allowing HP to lobby the Proxy Working Group to change its mind, the CIO asked the bankers whether they were “trying to pressure him,” according to the SEC’s order. The two bankers denied doing so. After Hewlett-Packard finished its presentation to the Proxy Working Group, CEO Fiorina concluded by saying that the merger was “of great importance to our ongoing relationship,” according to the SEC. DeAM said it had changed its policies to avoid future problems. “Deutsche Asset Management is pleased to reach this final resolution with the SEC. Even before today’s settlement, we voluntarily strengthened our policies regarding information barriers to ensure that proxies will continue to be cast in the best interests of our advisory clients,” the company said in a statement. Wilmer, Cutler & Pickering represented DeAM during the SEC investigation. A company spokeswoman said she could not elaborate on any changes made at the company, nor whether anyone was disciplined in connection with the proxy vote. “It’s behind them,” said William McLucas, the Wilmer, Cutler partner who represented DeAM in the SEC action. “It’s about process, and none of this affected the proxy vote.” Nevertheless, Deutsche Bank was obligated to disclose the consulting work, said Mitchell, the SEC’s assistant district administrator. “This is just basic fiduciary law,” Mitchell said. Mitchell said the SEC focused only on Deutsche Bank — Hewlett-Packard’s handling of the proxy vote was a matter for the trial in Chandler’s chancery court. “Delaware looked at the obligations and responsibilities of HP,” Mitchell said. Attorneys at Cooley Godward who represented Walter Hewlett could not be reached. Weiss & Yourman associate Behram Parekh, who helped bring a class action challenge to the merger, which was tossed by U.S. District Judge Claudia Wilken, said the SEC’s action “shows we were more right that wrong.” “I know we didn’t know [about the consulting work],” Parekh said. “What we were trying to investigate was what the relationship was. We didn’t realize until this came on that they were directly hired for [the merger].”

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