Thursday, June 18, 2015

SEC Charges 36 Firms In Massive Muni-Underwriting Shakedown Including Citigroup, Merrill, Morgan Stanley & Goldman Sachs

The SEC announced enforcement actions against the banks listed below. These are actions specifically for violations in municipal bond offerings. What's interesting about this case is that banks got off easy.

As a way to incentive banks to self-report material misstatements and omissions in muni-offerings the SEC offered firms favorable terms for self-reporting. This is referred to as the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative.

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

LeeAnn Ghazil Gaunt, Chief of the Enforcement Division’s Municipal Securities and Public Pensions Unit had this to say, “The settlements announced today reflect these underwriters’ cooperation in self-reporting their own misconduct and agreeing to improve their procedures going forward. Because these 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 firms did not admit or deny the findings, but agreed to "cease and desist" from any future violations -- typical legal doublespeak.

The maximum penalty for each firm was $500,000.  Of the 36 firms charged, 8 received the maximum penalty.

Link to the SEC’s orders and penalty 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
•           Merrill Lynch, Pierce, Fenner & Smith Incorporated – $500,000
•           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

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