Broker-Dealer Settles SEC Charges for Failing to Comply with Limited Offer Exemption for Muni Securities

A broker-dealer settled SEC charges for disclosure violations in connection with a limited offering exemption on the sale of municipal securities.

According to the Order, the broker-dealer relied on the limited offering exemption under SEA Rule 15c2-12 ("Municipal securities disclosure"), which, among other things, requires a broker-dealer to have a reasonable belief that each purchaser is (i) financially knowledgeable and capable of evaluating the risks of such investments and (ii) is not purchasing securities with the intent to distribute them, or purchasing for multiple accounts. The SEC found that the broker-dealer "did not provide investors in these securities with copies of any Preliminary Official Statement or Final Official Statement for the securities, or determine that a continuing disclosure undertaking had been entered into by the issuer, or an obligated person, as required by Exchange Act Rule 15c2-12(b)." The SEC found that in various offerings, the broker-dealer, acting as underwriter, sold municipal securities to other dealers and investment advisers without first determining whether these purchases were intended for distribution or multiple accounts. Further, the SEC determined that the broker-dealer failed to implement any policies or supervisory procedures that would ensure reasonable compliance with SEC and MSRB regulations.

The SEC concluded that the firm violated SEA Rule 15c2-12, MSRB Rule G-27 ("Supervision") and SEA Section 15B(c)(1) ("Municipal Securities"). To settle the charges, the broker-dealer agreed to (i) cease and desist from further violations, (ii) a censure, (iii) pay disgorgement of $263,607 with prejudgment interest of $33,528 and (iv) pay a monetary civil penalty of $100,000.