Firm pays SEC fees to give priority to “Pinball machines” in municipal offers – Corporate / commercial law

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United States: Company pays SEC fee to prioritize pinball machines in municipal deals

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In separate orders, a municipal securities firm, the head of the company’s sales, trading and syndication group, and the head of the company’s union office paid the SEC’s fees (see here, here, and here, respectively) for inappropriately assigning municipal bonds to “fins” (that is to say, unregistered brokers who buy and sell bonds at a profit).

The SEC found that between January 2014 and December 2017, the company did not follow its “standard methodology” when acting as the sole underwriter or lead syndicate manager in negotiated offers in which it allocated bonds. . The SEC said the company’s methodology requires it to prioritize the execution of orders from clients, brokers, union members and other brokers over pinball orders.

The SEC found that:

  • on 41 occasions the company did not prioritize institutional client or broker orders over pinball orders, even when it had more orders than bonds available;
  • on three occasions, the company knowingly did not assign bonds according to the issuer’s instructions, offering them to pinball machines before retail clients; and
  • In cases where the company did not act as a participating underwriter, it caused the pinball machines to act as unregistered brokers by acquiring new municipal bonds issued from the pinball machines and paying them on a transaction basis.

In addition, the SEC determined that the head of the company’s sales office and the head of the union office were aware of the improper conduct.

SEC found respondents to violate MSRB rules G-11 (k) (“Retail Order Period Statements and Information Required”) and G-17 (“Conduct of municipal security and municipal advisory activities”) and Section 15B (c) (1) (“Discipline of municipal stockbrokers; censorship; suspension or revocation of registration; other penalties; investigations”) of the Exchange Act. In addition, the SEC found that the company had violated the MSRB rule. G-27 (“Supervision”) and caused violations of the SEA section 15 (a) (1) (“Registration of all persons using foreign exchange facilities to transact; exemptions”).

To settle the charges, the respondents agreed to (i) censure, (ii) cease and desist from any future violations and (iii) civil fines of $ 150,000, $ 30,000 and $ 25,000, respectively, part of which will be sent to the MSRB. The company also agreed to pay $ 713,327 in restitution and prejudgment interest.

Primary sources

  1. SEC press release: RBC accused of failing to prioritize retail and institutional investors in municipal deals
  2. SEC Order: RBC Capital Markets, LLC
  3. SEC Order: Kenneth G. Friedrich
  4. SEC Ordinance: Jaime L. Durando

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