SEC penalizes 13 firms for improper sales of Puerto Rican bonds

The SEC cracks down on financial firms, including Schwab, J.P. Morgan Securities, Lebenthal, Oppenheimer, TD Ameritrade, UBS and Wedbush for selling risky debt beneath the minimum allotment of $100,000 for a single transaction.
DEC 31, 2014
The Securities and Exchange Commission on Monday fined 13 financial firms for improperly selling Puerto Rican bonds to retail clients. Under an SEC rule, municipal bonds can only be sold in a “minimum denomination” of $100,000 per transaction to keep small players out, protecting those who may not be able to withstand large losses on risky offerings. Earlier this year, the SEC found 66 instances of sales under the $100,000 threshold in a $3.5 billion Puerto Rican junk-bond offering. The sanctioned firms agreed to settle with the SEC for penalties ranging from $54,000 to $130,000. Among the firms cited were Charles Schwab & Co. ($61,800), J.P. Morgan Securities ($54,000), Lebenthal & Co. ($54,000), Oppenheimer & Co. ($61,200), TD Ameritrade ($100,800), UBS Financial Services ($56,400) and Wedbush Securities Inc. ($67,200). The SEC investigation focused on the trading of securities from a $3.5 billion Puerto Rico general-obligation deal in March, the largest speculative-grade tax-exempt sale ever. “These actions demonstrate our commitment to rigorous enforcement of all types of violations in the municipal bond market,” Andrew Ceresney, director of the SEC Division of Enforcement, said in a statement. “We will act quickly and use all available tools to protect investors in municipal securities.” Steep losses on Puerto Rican bonds have bedeviled financial firms since the market for the instruments declined precipitously in 2013. The firms agreed to be censured and to review their policies and procedures. None of them admitted to wrongdoing. The cases were the first the SEC has pursued under the minimum-denomination rule. “We fully cooperated with the SEC, and agreed to a settlement without admitting or denying the allegations,” Kristin Petrick, a TD Ameritrade spokesperson, wrote in an e-mail. Greg Gable, a spokesman for San Francisco-based Charles Schwab, said the settlement stemmed from four trades initiated by customers, all of which were canceled once the firm became aware of them. “We are reviewing all related procedures to assure it doesn't happen in the future,” Mr. Gable said in a statement. Brian Marchiony, a spokesman for New York-based JPMorgan Chase & Co. (JPM), declined to comment. Defense attorneys for Lebenthal and UBS were not immediately available for comment. Bloomberg News contributed to this article

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