Broker-Dealer Settles SEC Charges for Violating Retail Order Restrictions

A broker-dealer settled SEC charges for violating retail order period restrictions in connection with the offering of municipal bonds. The SEC alleged that the broker dealer improperly allocated numerous bonds intended for retail customers to "flippers," who immediately resold the bonds at a profit to other broker-dealers. The SEC found that the broker-dealer's representatives facilitated trades with flippers, allowing the broker-dealer to obtain bonds for its own inventory, which circumvented the priority of retail orders set by the issuers and resulted in a "higher priority in the bond allocation process."

To settle the charges, the broker-dealer agreed to (i) cease and desist from further violating securities regulations, (ii) a censure, (iii) disgorge $6,740,000, in addition to paying prejudgment interest in the amount of $1,549,336, and (iv) pay a $1,750,000 civil money penalty to the SEC ($525,000 of which will be transferred to the MSRB, with the remaining $1,225,000 transferred to the Treasury general fund). The SEC noted that, when determining to accept the settlement offer, it took into consideration the broker-dealer's prompt remedial efforts.

In a related action, the SEC issued Orders (see here and here) instituting administrative proceedings against two of the broker-dealer's registered representatives for submitting orders on behalf of the flippers. To settle the charges, the representatives agreed to (i) limitations on issuing municipal securities offerings for a period of 12 months and (ii) pay respective disgorgement amounts of $23,831 and $14,503, in addition to prejudgment interest amounts of $4,145 and $2,082 and (iii) pay civil monetary penalties of $25,000 each, to be split, in each case, between the MSRB and the Treasury general fund.