The Securities and Exchange Commission (SEC) announced enforcement actions against 36 municipal bond underwriting brokerage firms for material misstatements and omissions in municipal bond offering documents. The SEC offered favorable settlement terms to municipal bond underwriters and issuers who self-reported securities law violations leading to the settlements.
The SEC alleged that between 2010 and 2014, 36 brokerage and financial firms violated federal securities laws by selling municipal bonds using offering documents that contained materially false statements or omissions about the bond issuers’ compliance with their obligation to disclosure. The firms were also alleged by the SEC to have failed to conduct adequate due diligence to identify the misstatements and omissions before offering and selling the bonds to their customers.
The municipal bond market is a $3.7 trillion market. Continuing disclosure provides municipal bond investors with information about the solvency and financial fitness of issuers on an ongoing basis. The SEC had previously identified issuers’ failure to comply with their continuing disclosure obligations as being a major challenge for investors seeking up to date information about their municipal bond holdings.
The SEC expects that a large number of bondholders will benefit from the resulting improvements in due diligence and disclosure as a result of the settlements. The 36 brokerage firms did not admit or deny the findings but agreed to cease and desist from such violations in the future. The settlement fines were based on the number and size of the fraudulent offerings identified. In addition, under the terms of the settlement each brokerage firm agreed to retain an independent consultant to review its policies and procedures on due diligence for municipal securities offerings.
The SEC’s orders include the following brokerage firms and amounts:
- The Baker Group, LP – $250,000
- B.C. Ziegler and Company – $250,000
- Benchmark Securities, LLC – $100,000
- Bernardi Securities, Inc. – $100,000
- BMO Capital Markets GKST Inc. – $250,000
- BNY Mellon Capital Markets, LLC – $120,000
- BOSC, Inc. – $250,000
- Central States Capital Markets, LLC – $60,000
- Citigroup Global Markets Inc. – $500,000
- City Securities Corporation – $250,000
- Davenport & Company LLC – $80,000
- Dougherty & Co. LLC – $250,000
- First National Capital Markets, Inc. – $100,000
- George K. Baum & Company – $250,000
- Goldman, Sachs & Co. – $500,000
- Hutchinson, Shockey, Erley & Co. – $220,000
- J.P. Morgan Securities LLC – $500,000
- L.J. Hart and Company – $100,000
- Loop Capital Markets, LLC – $60,000
- Martin Nelson & Co., Inc. – $100,000
- Merchant Capital, L.L.C. – $100,000
- Morgan Stanley & Co. LLC – $500,000
- The Northern Trust Company – $60,000
- Oppenheimer & Co. Inc. – $400,000
- Piper Jaffray & Co. – $500,000
- Raymond James & Associates, Inc. – $500,000
- RBC Capital Markets, LLC – $500,000
- Robert W. Baird & Co. Incorporated – $500,000
- Siebert Brandford Shank & Co., LLC – $240,000
- Smith Hayes Financial Services Corporation – $40,000
- Stephens Inc. – $400,000
- Sterne, Agee & Leach, Inc. – $80,000
- Stifel, Nicolaus & Company, Inc. – $500,000
- Wells Nelson & Associates, LLC – $100,000
- William Blair & Co., L.L.C. – $80,000
Investors who have suffered losses may be able recover their losses through securities arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors in cases where their broker has acted inappropriately. Our consultations are free of charge and the firm is only compensated if you recover.