Close Close

Regulation and Compliance > Federal Regulation > SEC

36 BDs to Pay SEC $9M for Muni Bond Underwriting Failures

Your article was successfully shared with the contacts you provided.

The Securities and Exchange Commission said Thursday that it had brought enforcement actions totaling approximately $9 million against 36 broker-dealers — including Raymond James, Merrill Lynch and Goldman Sachs — for misstatements and omissions in underwriting municipal bonds.

The cases are the first brought against underwriters under the Municipalities Continuing Disclosure Cooperation Initiative, a voluntary self-reporting program targeting material misstatements and omissions in municipal bond offering documents. 

Andrew Ceresney, director of the SEC’s Enforcement Division, said on a call to announce the settled administrative proceedings that the BDs “did not conduct adequate due diligence” before offering bonds to investors, and that the BDs “falsely stated they had complied in the past with ‘continuing disclosures.’”

In Thursday’s action, the SEC alleged that between 2010 and 2014, the 36 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 continuing disclosure obligations. 

The underwriting firms also allegedly failed to conduct adequate due diligence to identify the misstatements and omissions before offering and selling the bonds to their customers. 

The Enforcement Division MCDC initiative announced was announced in March 2014 and offered favorable settlement terms to municipal bond underwriters and issuers who self-reported securities law violations.

The first issuer charged under the initiative settled with the SEC in July 2014.

LeeAnn Ghazil Gaunt, chief of the Enforcement Division’s Municipal Securities and Public Pensions Unit, said in statement that the settlements announced Thursday “reflect these underwriters’ cooperation in self-reporting their own misconduct and agreeing to improve their procedures going forward.”

Because the 36 firms underwrite “a substantial portion of the country’s municipal bonds each year, we expect a large number of bondholders will benefit from the resulting improvements in due diligence and disclosure.” 

The 36 firms, which did not admit or deny the findings, agreed to cease and desist from such violations in the future.  Under the terms of the MCDC initiative, they will pay civil penalties based on the number and size of the fraudulent offerings identified, up to a cap based on the size of the firm. The maximum penalty imposed is $500,000. 

In addition, each firm agreed to retain an independent consultant to review its policies and procedures on due diligence for municipal securities underwriting. 

“The MCDC initiative has already resulted in significant improvements to the municipal securities market, including heightened awareness of issuers’ disclosure obligations and enhanced disclosure policies and procedures,” said SEC Chairwoman Mary Jo White, in a statement. “This ongoing enforcement initiative will continue to bring lasting changes to the municipal securities markets for the benefit of investors.”

Ceresney added that the MCDC initiative “has already improved the behavior of participants in the $3.7 trillion municipal bond market.” 

— Check out Former BofA Exec Sentenced Over Muni Bond Fraud on ThinkAdvisor.


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.