Broker-dealer PNC Capital Markets agreed to pay nearly $200,000 and be censured to resolve Securities and Exchange Commission (SEC) allegations it violated rules related to limited offerings of municipal securities.
The SEC requires underwriters who make primary offerings of municipal securities worth $1 million or more to obtain a “continuing disclosure agreement” from the issuer of the securities confirming the issuer will provide information on a continuing basis to the Municipal Securities Rulemaking Board.
The agency allows an exemption to the disclosure rule if the securities are sold in denominations of $100,000 or more to 35 or fewer sophisticated investors whose intent is to invest. These requirements are “designed to prevent fraud in primary offerings of municipal securities,” the SEC said.
The underwriter must believe the investor is knowledgeable and experienced in financial matters and can ascertain the risk involved in the investment. The SEC also requires municipal underwriters to enforce written, supervisory procedures designed to ensure compliance with the underwriting rules.
From March 2018 through November 2021, PNC violated the exemption rule and sold municipal securities to 36 broker-dealers and investment advisers without confirming the purchasers were buying the securities as investments, as required under the Exchange Act rule, the SEC alleged in its order filed Wednesday.
“PNC did not inquire, or otherwise determine, if the broker-dealers and investment advisers were purchasing the securities for more than one account or for distribution,” the SEC said.
“PNC did not maintain documentation or evidence that the limited offering exemption was met for every municipal primary offering,” the agency added.
As a result, PNC “failed to consistently enforce its policies and procedures to ensure that purchasers satisfied the exemption’s requirements,” the SEC said.
Without admitting or denying the agency’s findings, PNC consented to pay a $100,000 fine, $81,362 in disgorgement, and $16,961 in prejudgment interest.
PNC declined to comment.