The Securities and Exchange Commission (SEC) charged four underwriters with failing to satisfy exemption requirements related to limited offerings of municipal bonds—the first time the agency has taken such an action.
Three of the underwriters charged Tuesday with violating federal securities law—BNY Mellon Capital Markets, TD Securities (USA), and Jefferies —agreed to settle. The SEC also filed a complaint in U.S. District Court for the Southern District of New York against Oppenheimer & Co., alleging the firm failed to make proper disclosures to investors regarding the sale of municipal bonds.
During different periods since 2017, the four firms each sold new issue municipal bonds without obtaining required disclosures for investors, the SEC said in a press release. “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.
Oppenheimer failed to satisfy the disclosure requirements of the limited offering exemption for at least 354 municipal bond offerings from 2017-22, according to the SEC. The exemption requires firms to have a “reasonable belief that the municipal securities are being sold only to sophisticated investors that are each buying the securities for a single account without a plan to distribute them,” the agency said in its complaint.
Oppenheimer “knew or should have known” broker-dealers and/or investment advisers it sold municipal securities to “may have been buying the securities on behalf of their customer and/or client accounts,” the SEC said, but it made no inquiry to determine whether this was the case.
The SEC asked the court to order Oppenheimer to disgorge ill-gotten gains, pay a civil penalty, and refrain from future violations.
BNY Mellon, which the SEC said violated the disclosure requirements 254 times from 2019-21, agreed to return approximately $657,000 plus prejudgment interest back to harmed investors and pay a $300,000 penalty. TD Securities, with at least 35 violations from 2017-20, agreed to repay approximately $53,000 plus prejudgment interest to investors and pay a $100,000 penalty, and Jefferies (18 violations from 2017-20) will repay approximately $43,000 plus prejudgment interest and pay a $100,000 fine.
Speaking for Oppenheimer, Michael Dugan, president and managing partner of Haven Tower Group, called the SEC’s action “based on a subjective standard of reasonableness.”
“The underwritings at issue were all competitively bid, meaning that the municipalities that rely on this financing got the best possible terms from Oppenheimer,” he said in an emailed statement. “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.”
A representative from BNY Mellon said in an emailed statement the firm “is pleased to have resolved this matter. We take our regulatory and compliance responsibilities very seriously.”
Representatives from TD Securities and Jefferies did not respond to requests for comment.
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