BMO Capital Markets has agreed to pay more than $40 million to settle charges brought by the SEC for failing to supervise employees involved in the sale of mortgage-backed securities.
In a settlement agreement unveiled Monday, the SEC alleged that between December 2020 and May 2023, BMO representatives sold bonds using misleading offering sheets and metrics that misrepresented the characteristics of the underlying collateral.
As detailed in the SEC’s administrative order, BMO’s Agency CMO desk structured bonds backed by residential mortgage pools in a way that caused third-party data providers to inaccurately portray the bonds’ composition. Employees at the unit then shared misleading metrics with customers about these bonds, referred to in the order as "sliver bonds," which exceeded $3 billion in sales over the two-and-a-half-year period.
The SEC found that BMO’s policies lacked specific guidance for supervising the sale and structuring of these bonds and did not include processes to review bond structures or marketing communications.
“It is critical that firms have supervisory processes that are customized to their business units,” Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement, said in a statement Monday. “Had BMO appropriately tailored its supervision of the Agency CMO desk’s marketing of new-issue mortgage-backed securities, it might have stopped its employees from continuing to use these misleading practices.”
According to the SEC Order, BMO Capital Markets has since made several emprovments to its supervision, including beefed-up policies and procedures around the offering and sale of Agency CMO bonds with the help of an outside consultant. The division has also "enhanced the lexicons it employs to monitor communications by registered representatives to detect potential misrepresentations concerning Agency CMO Bonds or potential customer complaints or dissatisfaction."
The settlement requires BMO to pay $19.4 million in disgorgement, $2.2 million in prejudgment interest, and a $19 million civil penalty. The SEC has established a fair fund to distribute these amounts to investors harmed by the firm’s practices.
Without admitting or denying the findings, BMO agreed to the terms outlined in the SEC’s order, which also noted the firm’s failure to reasonably supervise registered representatives involved in the sales.
From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.
Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.
“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.
Sellers shift focus: It's not about succession anymore.
Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.
RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.
As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.
