SEC Bags 3 Dozen BrokerDealers in Muni Bond Underwriter Sweep; Siebert & Loop Snagged

Posted on June 21, 2015June 21, 2015 by admin

BrokerDealer.com profiles what could be called a “Muni Day Massacre” as the SEC just announced settlement with 36 municipal bond underwriting firms – for a total of $9.3 million– for offerings which they disclosed under the MCDC had compliance violations. The SEC sweep scooped up several MWBE-certified firms, including Siebert Brandford Shank & Co., LLC, which was fined $240,000 and Chicago-based Loop Capital Markets, LLC was fined $60,000.

Here is the official press release from the SEC:

June 18 2015–The Securities and Exchange Commission today announced enforcement actions against 36 municipal underwriting firms for violations in municipal bond offerings. The cases are the first brought against underwriters under the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative, a voluntary self-reporting program targeting material misstatements and omissions in municipal bond offering documents.

“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 Chair Mary Jo White. “This ongoing enforcement initiative will continue to bring lasting changes to the municipal securities markets for the benefit of investors.”

In today’s actions, 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

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

As still remains customary within the wacky regulatory scheme in which the SEC deals with broker-dealers, the 36 firms did not admit or deny the findings, but 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, which is continuing, is being coordinated by Kevin Guerrero of the Enforcement Division’s Municipal Securities and Public Pensions Unit. * * *

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

SEC Appointment Of In-House Judge “Likely Unconstitutional”

Posted on June 10, 2015June 11, 2015 by admin

Secruities and Exchange Commission could face potential problems after a federal court ruled that its appointment of an in-house judge to preside over administrative insider trading cases was “likely unconstitutional.”

BrokerDealer.com update profiles what could turn into a legal brouhaha as the SEC’s recent strategy to use internal arbitrators could prove to be a major conflict of legal interest, as U.S. District Judge Leigh Martin May’s decision Monday that the SEC may not have the authority to divert such cases from regular courts halted its action against a Georgia real-estate developer. Charles Hill was accused of profiting from trades made after he received a tip from a friend. He sued in Atlanta federal court to block the administrative action.

BrokerDealer.com provides a comprehensive global database directory with information for thousands of broker-dealer firms in more than 30 countries throughout the free market world.

The SEC has increasingly been using its five administrative-law judges to hear its cases, rather than sending them to federal court, legal experts said. Although the ruling was preliminary, and won’t necessarily be duplicated in other federal courts, it could have ramifications for other SEC cases and potentially other federal agencies.

The decision is the first by a federal judge to find the SEC’s in-house tribunal could breach the Constitution. Previous constitutional challenges to the SEC’s system of judges, based on different legal arguments, have been inconclusive or unsuccessful.

To read more, check out this article by the WSJ.

Finra Focuses On Educational Communication With Investors In New Compensation Proposal

Posted on May 29, 2015May 28, 2015 by admin

Brokerdealer.com blog update profiles a new proposal from Finra that has educating investors as their main focus. This proposal is a revised version of the one Finra filed last spring with the SEC. In the previous filing, brokers would have required brokers to disclose to investors recruiting incentives above $100,000 they received for switching to a new firm. This new proposal requires firms to send “educational communication” to investors when a broker moves to that firm. This educational communication proposal is drawing a lot of backlash as critics believe it watered down the original idea for compensation disclosures. This brokerdealer.com blog update is courtesy of InvestmentNews’ Mark Schoeff Jr. and his article, “Finra releases revised broker compensation proposal“.

Finra released a revised proposal Wednesday for a rule designed to help investors understand the financial incentives their brokers had for switching to a new firm.

Under the rule, brokerages would have to send an “educational communication” to investors working with a broker who is moving to their firm. The document customers receive would outline questions they should ask their broker about the compensation and other inducements the broker is getting to transfer to the new firm.

The questions would help investors determine whether the broker’s financial incentives create a conflict of interest and whether investors would incur costs by following the broker to a new firm.

The broker-compensation proposal is a revised version of one the Financial Industry Regulatory Authority Inc. filed with the Securities and Exchange Commission in March 2014 but later withdrew amid industry resistance.

To continue reading about this investor educational communication focused Finra proposal, click here.

What’s Best For The Customer Doesn’t Matter According To Finra CEO Ketchum

Posted on May 28, 2015May 28, 2015 by admin

Brokerdealer.com blog update profiles Finra CEO, Richard Ketchum has come back at the Department of Labor (DOL), as it proposed to raise invesment advice standards for broker dealers. Ketchum claims this could cause firms to discontinue sales of individual retirement accounts as it would force there be a bias against products with higher fees, regardless of what’s best for the customer. This brokerdealer.com blog update profiling the implications of this new DOL proposal is courtesy of InvestmentNews article, “Finra’s Ketchum criticizes DOL fiduciary rule“, with an excerpt below.

Finra’s CEO Richard Ketchum criticized a Department of Labor proposal to raise investment advice standards for brokers Wednesday, saying it might cause firms to curtail — or even discontinue — sales of individual retirement accounts.

Mr. Ketchum said the DOL proposal would create a bias against financial products with higher fees, even if they’re the best recommendation for a client, and that it could force firms to move to a fee-based rather than brokerage business model. He also said it’s not a good idea to regulate retirement products, such as 401(k)s and IRAs, differently than other investments.

The Securities and Exchange Commission should take the lead in drafting a fiduciary-duty rule “across all securities products,” Mr. Ketchum told reporters on the sidelines of the Financial Industry Regulatory Authority Inc’s annual conference in Washington. SEC Chairwoman Mary Jo White favors such a rule, but has acknowledged it’s not clear whether she has the support of the five-member panel to make a proposal.

To continue reading about Finra CEO Ketchum and his take on the DOL proposal and his opinion on the SEC acting on this issue first, click here.

International Fraud Lands New York BrokerDealer In Hot Water

Posted on May 22, 2015May 21, 2015 by admin

Brokerdealer.com blog update profiles New York broker dealer, Robert Depalo, being charge with several charges after a year long investigation discoverd Depalo was running a highly sophisticated international fraud scheme. Depalo schemed more than 20 wealthy London investors with the help of 37 year old associate, Joshua Gladtke. Both are being charged by the Manhattan DA as well as the SEC. This update is courtesy of the Wall Street Journal’s article, “Manhattan DA Charges NY Broker-Dealer in International Fraud“, with an excerpt below. The Manhattan district attorney’s office charged New York broker-dealer Robert Depalo with running a sophisticated investment fraud, following a yearslong investigation that the office nearly dropped after hitting a dead-end. Prosecutors alleged in court documents that Mr. Depalo duped more than 20 high-net-worth investors in London into pouring $6.5 million into a fraudulent investment vehicle called Pangaea Trading Partners LLC. The Securities and Exchange Commission filed similar civil charges Wednesday afternoon. The alleged scheme involves a complicated trail of money and sham entities that not only befuddled investors but prosecutors as well, the people said. It also highlights the efforts of the district attorney’s office to pursue increasingly complex and international cases that are more frequently handled by city prosecutors’ federal counterparts blocks away at the Manhattan U.S. attorney’s office.

To continue reading about the international fraud scheme, Depalo’s charges, click here