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SEC Fines 14 Firms for Muni Bond Violations

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The Securities and Exchange Commission said Tuesday that it levied enforcement actions against 14 municipal underwriting firms for violations in municipal bond offerings. 

The actions conclude charges against underwriters under the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative.  

The SEC orders and penalty amounts taken Tuesday include:

  • Barclays Capital Inc. – $500,000
  • Boenning & Scattergood Inc. – $250,000
  • D.A. Davidson & Co. – $500,000
  • First Midstate Inc. – $100,000
  • Hilltop Securities Inc. – $360,000
  • Janney Montgomery Scott LLC – $500,000
  • Jefferies LLC – $500,000
  • KeyBanc Capital Markets Inc. – $440,000
  • Mitsubishi UFJ Securities (USA) Inc. – $20,000
  • Municipal Capital Markets Group Inc. – $60,000
  • Roosevelt & Cross Inc. – $250,000
  • TD Securities (USA) LLC – $500,000
  • United Bankers’ Bank – $160,000
  • Wells Fargo Bank N.A. Municipal Products Group – $440,000 

In all, 72 underwriters have been charged under the voluntary self-reporting program targeting material misstatements and omissions in municipal bond offering documents.

In Tuesday’s actions, the SEC stated that between 2011 and 2014, the 14 underwriting firms sold municipal bonds using offering documents that contained materially false statements or omissions about the bond issuers’ compliance with continuing disclosure obligations.

The SEC also found that the underwriting firms “failed to conduct adequate due diligence to identify the misstatements and omissions before offering and selling the bonds to their customers.”

While not admitting or denying the findings, the 14 firms 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. Each firm also agreed to retain an independent consultant to review its policies and procedures on due diligence for municipal securities underwriting, the SEC said.

“The settlements obtained under the MCDC initiative have brought much-needed attention to disclosure obligations in municipal bond offerings,” said Andrew Ceresney, director of the SEC’s Enforcement Division, in a statement. “As part of the settlements, 72 underwriting firms – comprising approximately 96% of the market share for municipal underwritings – have agreed to improve their due diligence procedures and we expect that investors will benefit from those improvements.” 

The MCDC Initiative, being coordinated by Kevin Guerrero of the Enforcement Division’s Municipal Securities and Public Pensions Unit, was announced in March 2014 and offered favorable settlement terms to municipal bond underwriters and issuers that self-reported violations. 

The first enforcement actions against underwriters under the initiative were brought in June against 36 municipal underwriting firms.  An additional 22 underwriting firms were charged in September. All of the firms settled the actions and paid civil penalties up to a maximum of $500,000. 

The SEC said Tuesday that its initiative is continuing with respect to issuers who may have provided investors with inaccurate information about their compliance with continuing disclosure obligations. 

The SEC’s 2012 Municipal Market Report identified issuers’ failure to comply with their continuing disclosure obligations as a major challenge for investors seeking important information about their municipal bond holdings. 


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