Edward D. Jones & Co. will pay $20 million to settle allegations by the Securities Exchange Commission that the firm overcharged its retail customers on new municipal bond sales. The SEC claims that between 2009 and 2012 Edward Jones allegedly overcharged its clients by $4.6 million at minimum by offering the bonds at a higher price than required by securities laws.
By rule, new bonds must be sold to customers at an initial offering price that is negotiated with the bond issuer. However, instead of offering these bonds at the negotiated price, Edward Jones is accused of bringing the bonds into its own inventory and later offering them at higher prices, sometimes even after the bonds had already begun to trade in the secondary market. The SEC claims Edward Jones was “at least negligent” regarding the overcharges.
The SEC further stated, “Their conduct was inconsistent with industry standards for, and written agreements governing, municipal underwriting.” Edward Jones agreed to the settlement without admitting or denying the findings. A spokesman for the firm stated that it had fully cooperated with the SEC and is “glad to have this behind us.”
Although the SEC claims that its investigation was continuing, officials did not elaborate. Edward Jones’ spokesman, however, disagreed with the SEC’s characterization and believes the investigation is finished.
The firm’s $20 million fine includes $5.2 million in disgorgement and interest to be paid to clients who were overcharged. Stina R. Wishman, Edward Jones’ head of municipal underwriting, was also barred from the industry for at least two years and agreed to pay $15,000.
“Edward Jones undermined the integrity of the bond underwriting process by overcharging retail customers by at least $4.6 million and by misleading municipal issuers,” Andrew J. Ceresney, director of the SEC’s Enforcement Division, said in a statement. “This enforcement action, which is the first of its kind, reflects our commitment to addressing abuses in all areas of the municipal bond market.”
Under the settlement, all clients will be reimbursed. The $5.2 million will go to about 13,000 clients and average roughly $400 per client.
Edward Jones was further charged with failing to supervise reviews concerning certain secondary market municipal bond trades. The SEC claims the firm did not have a supervisory system in place to ensure the markups it charged customers on certain transactions were reasonable.
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