The SEC filed its first enforcement actions against 36 municipal underwriting firms under the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative.  The MCDC is a voluntary self-reporting program.  It aims to correct fraudulent misrepresentations and omissions in municipal bond offering documents.

For actions that spanned from 2010 to 2014, 36 firms were charged with violations of federal securities laws.  These firms sold municipal bonds with offering documents containing fraudulent compliance terms of obligations regarding continuing disclosure.  The firms also failed to conduct due diligence to discover the misrepresented material before offering and selling the bonds.  Neglecting continuing disclosure has long been a problem for investors to find information about their municipal bond holdings, such as annual financial reports.

In March 2014, the SEC offered to settle in cases when underwriters and issuers volunteer to self-report securities law violations under the MCDC.  After this announcement made in March 2014, the first issuer charged under the initiative settled with the SEC in July 2014.  The MCDC is credited with the recent progress in the municipal bonds market.  Mary Joe White, SEC Chair, says the two biggest improvements are “heightened awareness of issuers’ disclosure obligations and enhanced disclosure policies and procedures.”

“The settlements announced [on the day the SEC announced enforcement actions] reflect these underwriters’ cooperation in self-reporting their own misconduct and agreeing to improve their procedures going forward,” stated 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.”

All 36 firms are barred from making such violations in the future.  Each firm will pay civil penalties based on the number and size of the fraudulent offerings identified.  In addition, each firm agreed to use an independent consultant to review firm policies and procedures on due diligence.

The 36 firms and their individual penalty amounts are:

• 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

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies or complete the contact form.