The U.S. Securities and Exchange Commission announced today it has charged Oppenheimer & Co, BNY Mellon, TD Securities and Jefferies with violating municipal bond offering disclosure requirements.
The agency filed litigation against Oppenheimer, while the other three brokerage firms settled the charges without admitting or denying guilt and will pay penalties totaling $1,253,003.
The charges are the first brought by the agency under its new municipal bond disclosure law. The SEC said the four brokers each sold new issue municipal bonds since 2017 without obtaining required disclosures for investors.
“Each of the firms purported to rely on an exemption to the typical disclosure requirements called the limited offering exemption, but they did not take the steps necessary to satisfy the exemption’s criteria,” the agency said in a statement.
Oppenheimer disputed the charges.
"The SEC’s complaint brings an action based on a subjective standard of reasonableness," Oppenheimer spokesman Michael Dugan said in a statement emailed to Financial Advisor. "The underwritings at issue were all competitively bid, meaning that the municipalities that rely on this financing got the best possible terms from Oppenheimer. The complaint requests disgorgement of profits even though the sales in question were to market professionals and no investors were harmed in this process. Oppenheimer believes it acted reasonably at all times and intends to defend itself vigorously against these claims."
According to the SEC, all four firms sold the municipal securities to broker-dealers and/or investment advisors who purchased the securities for separately managed accounts, without having a reasonable basis to believe the bonds would be resold to sophisticated investors in denominations of $100,000 or more—a requirement for the disclosure exemption.
The SEC “was concerned the bonds would immediately be resold to public investors without the benefit of the rule’s requirements, including the undertaking by issuers to provide investors with continuing disclosure about their investments,” the agency said.
Without the exemption, brokers are required to obtain and deliver ongoing disclosure documents that detail each municipal issuer’s financial condition and operating data, as well as information about credit rating changes, payment delinquencies or bankruptcy, which may have a financial impact on the municipal issuer or the value of the bond.
"I applaud the excellent work of the Division’s Public Finance Abuse Unit in bringing these first-ever actions in the $4 trillion municipal bond space," Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in a statement. "We encourage underwriters to examine their practices and to self-report any failures to us before we identify them ourselves."