The Bank of New York Mellon Corp., parent company of clearing and custodial firm Pershing LLC., agreed to pay $1.3 million to settle an investigation into trading of auction rate securities. The investigation dealt specifically with one of the company’s subsidiaries, Mellon Financial Markets (now BNY Mellon Capital Markets).
Under the agreement, BNY Mellon will cease and desist from any further violations of the Martin Act and Executive Law, a statute that covers antifraud and deception in the sale of securities. BNY Mellon will pay $1.3 million in penalties, fees and costs to New York, Texas and Florida.
“Today’s announcement sends a clear message that the manipulative trading of auction rate securities in New York will not be tolerated under any circumstances,” New York Attorney General Eric Schneiderman said in a statement. “My office will continue to protect the integrity of NY’s global financial markets at all costs.”
The company also reacted to the news. “BNY Mellon Capital Markets is pleased to have resolved this matter, which centered on the isolated conduct of three individuals who are no longer with the company,” said BNY Mellon spokesman Ron Sommer.
According to the allegations, from Jan. 22, 2008 through Feb. 22, 2008, Mellon Financial Markets, acting as an intermediary broker on behalf of the Citizens Property Insurance Corp. (CPIC), enabled CPIC to purchase large quantities of its own auction rate securities by placing CPIC’s bids in CPIC’s own auctions as though they were the bids of an independent third-party buyer.