The SEC has filed enforcement actions against 36 municipal underwriting firms, most of them located in the Chicago area, for alleged violations involving municipal bond offerings. These are the first cases against underwriters brought under the Municipalities Continuing Disclosure Cooperation Initiative. Goldman Sachs & Co. (GS), Robert W. Baird & Co., J.P. Morgan Securities (JPM), Raymond James & Associates, Inc. (RJF), Morgan Stanley & Co. (MS), Citigroup Global Markets Inc. (C), Stifel, Nicolaus & Company, Inc. (SF), Piper Jaffray & Co. (PJC), Merrill Lynch, Pierce, Fenner & Smith Inc., and RBC Capital Markets, LLC were the firms ordered to pay the largest financial penalty of $500,000, respectively.
The program offers favorable settlement terms to municipal bond issuers and underwriters that voluntarily self-report violations to securities laws, including those involving omissions and material misstatements in muni bond offering documents. In these actions, the SEC contends that between ’10 and ’14, the firms violated federal securities law when they sold muni bonds.
These acts purportedly included using offering documents that omitted or included materially false statements regarding the bond issuers’ compliance with continuing disclosure duties. The firms also are accused of not doing a good enough job of detecting omissions and misstatements before making bond sales to customers.
Continuing disclosure allows muni bond investors to have access to annual financial reports and other data on a continual basis. The SEC said that the issuers’ failure to comply with the duties related to continuing disclosure posed a challenge to investors wanting that information.
The SEC’s Enforcement Division Municipal Securities and Public Pensions Unit Chief LeeAnn Ghazil Gaunt said that because the 36 firms are the underwriters for a huge chunk of the municipal bonds in the US, many bondholders are expected to benefit from the enhancements to disclosure and due diligence that will result as a result of these actions. The firms are settling without denying or admitting to the findings. They also consented to a cease and desist from such violations moving forward. A list of the 36 underwriters can be found on the SEC website.
Civil penalties will be paid according to the size of the firm and number of fraudulent offerings involved. The firms also consented to retain an independent consultant to examine policies and procedures regarding due diligence for municipal securities underwriting.
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SEC Charges 36 Firms for Fraudulent Municipal Bond Offerings, SEC, June 18, 2015
Municipalities Continuing Disclosure Cooperation (MCDC) Initiative