SEC Brings Enforcement Actions Against Underwriting Firms

The Securities and Exchange Commission filed enforcement actions against 22 municipal underwriting firms for violations in municipal bond offerings.


The actions are the second round of filings against underwriters under the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative, a voluntary self-reporting program targeting material misstatements and omissions in municipal bond offering documents.

The SEC found that between 2010 and 2014, the 22 underwriting firms violated federal securities laws by selling municipal bonds using offering documents that contained materially false statements or omissions about the bond issuers’ compliance with continuing disclosure obligations.

The SEC also found that the underwriting firms failed to conduct adequate due diligence to identify the misstatements and omissions before offering and selling the bonds to their customers.

The 22 firms, which did not admit or deny the findings, agreed to cease and desist from such violations in the future.

The SEC’s orders and penalty amounts are: Ameritas Investment Corp. – $200,000, BB&T Securities, LLC – $200,000, Comerica Securities, Inc. – $60,000, Commerce Bank Capital Markets Group – $40,000, Country Club Bank – $140,000, Crews & Associates, Inc. – $250,000 Duncan-Williams, Inc. – $250,000, Edward D. Jones & Co., L.P. – $100,000, Estrada Hinojosa & Company, Inc. – $40,000, Fifth Third Securities, Inc. – $20,000, The Frazer Lanier Company, Incorporated – $100,000, J.J.B. Hilliard, W.L. Lyons, LLC – $420,000, Joe Jolly & Co., Inc. – $100,000, Mesirow Financial, Inc. – $100,000, Northland Securities, Inc. – $220,000, NW Capital Markets Inc. – $100,000, PNC Capital Markets LLC – $500,000, Prager & Co., LLC – $100,000, Ross, Sinclaire & Associates, LLC – $220,000, UBS Financial Services, Inc. – $480,000, UMB Bank, N.A. Investment Banking Division – $420,000, and U.S. Bank Municipal Securities Group, a Division of U.S. Bank National Association – $60,000.

Under the terms of the MCDC Initiative, they will pay civil penalties based on the number and size of the fraudulent offerings identified, up to a cap based on the size of the firm.

The maximum penalty imposed is $500,000.

In addition, each firm agreed to retain an independent consultant to review its policies and procedures on due diligence for municipal securities underwriting.

“The MCDC Initiative has revealed that in recent years, a large number of municipal bond underwriters failed to conduct adequate due diligence before selling municipal bonds to their customers,” said Andrew Ceresney, Director of the SEC’s Enforcement Division, “In addition to effectively addressing this past misconduct, we believe the initiative has been effective in improving underwriter due diligence in municipal securities offerings on a going forward basis.”

The MCDC Initiative, announced in March 2014, offered favorable settlement terms to municipal bond underwriters and issuers that self-reported violations of the federal securities law.

The first municipal issuer charged under the initiative settled with the SEC in July 2014.

The first enforcement actions against underwriters under the initiative were instituted in June 2015 against 36 municipal underwriting firms.


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