Citi, Merrill among firms settling over diversion of muni bond proceeds

Citi, Merrill among firms settling over diversion of muni bond proceeds
Five shops agree to $3.35 million Finra fines, $1.13 million in restitution.
JAN 02, 2013
Five big municipal bond underwriters have agreed to pay $3.35 million in fines to Finra, and $1.13 million in restitution to California issuers, to settle allegations they illegally used underwriting proceeds to pay dues to a lobbying group. Citigroup Global Markets Inc. is paying an $888,000 fine, Merrill Lynch Pierce Fenner & Smith Inc. $787,000, Morgan Stanley & Co. LLC $647,700, Goldman Sachs & Co. $568,000 and J.P. Morgan Securities LLC $465,700. The Financial Industry Regulatory Authority Inc. claimed that the firms violated Municipal Securities Rulemaking Board rules by obtaining reimbursement for payments to the California Public Securities Association, from 2006 through 2010. Finra said the association, which represents bond underwriters, requested assessments of 1 to 2 cents per bond on deals of $2 million or more. The fees were routinely charged to issuers as “underwriting assessments.” State officials had approved the payments, but in February 2011, California Treasurer Bill Lockyer stopped the practice after the Finra investigation was reported in the media. The settling firms have already made some restitution to issuers at the request of the state treasurer. The Finra action results in additional payments. “It was unfair for these underwriters to pass along the costs of their Cal PSA membership to the municipal and state bond taxpayers, neglecting to disclose that these costs were unrelated to the bond deals,” said Finra enforcement chief Brad Bennett in a statement Thursday. In e-mails, Goldman Sachs spokeswoman Tiffany Galvin, and Bill Halldin, Mark Lake and Scott Helfman, spokesmen for Merrill, Morgan Stanley and Citi, respectively, said their firms were pleased to resolve the case. In February 2011, Goldman “discontinued the long-standing industrywide practice of seeking reimbursement for such fees on offerings by state and local governments in California,” Ms. Galvin added. Elizabeth Seymour, a spokeswoman for JPMorgan Chase & Co., declined comment. A spokeswoman for the California Public Securities Association was not available for comment. In settling the case, the firms neither admitted nor denied the charges.

Latest News

Treasury hits BofA with $1.2B fine over money laundering violations
Treasury hits BofA with $1.2B fine over money laundering violations

“Today’s actions send a clear message that even the biggest financial institutions are not above the law,” said Treasury Secretary Scott Bessent.

The hidden cost of growing a firm without intention
The hidden cost of growing a firm without intention

To build a truly self-sustaining practice, enterprising advisors have to start with a vision of what they want to be – and accept the realities that come with building toward it.

Waverly, Apella buy $412M in RIA assets across Oregon, Northeast
Waverly, Apella buy $412M in RIA assets across Oregon, Northeast

Serial acquirers add a 35-year-old Oregon wealth manager and a New York practice focused on women navigating life transitions.

&Partners taps two UBS leaders to run its private wealth business
&Partners taps two UBS leaders to run its private wealth business

Mara Glassel and Julie Fox will co-lead the fast-growing hybrid RIA’s ultra-high-net-worth and private wealth businesses.

Citi sees Q3 profit jump as wealth unit books record $38B in net new assets
Citi sees Q3 profit jump as wealth unit books record $38B in net new assets

The banking giant's wealth arm extends its revenue streak as it pushes to exit consent orders weighing on growth since 2020.

SPONSORED Built on insurance experience to deliver on long-term promises

Knighthead Life entered the market with a competitive MYGA. A strong launch earned advisor confidence and paved the way for FIAs.

SPONSORED In the Age of AI, Trust Becomes the Advisor's Greatest Asset

As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor