SEC Finds 22 Underwriting Firms in Violation of MCDC Initiative

For some background: the MCDC initiative is a voluntary self-reporting program targeting material misstatements and omissions in municipal bond offering documents.

Basically, the SEC found that between 2010 and 2014, 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 regulatory agency 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.

According to the report from the SEC:

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

ALSO READ: 4 Blue Chip High-Dividend Energy Stocks on Sale After Market Sell-Off

Andrew Ceresney, Director of the SEC’s Enforcement Division, commented on the situation:

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. 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 SEC listed the firms and their respective penalty amounts:

• Ameritas Investment, $200,000
• BB&T Securities, $200,000
• Comerica Securities, $60,000
• Commerce Bank Capital Markets Group, $40,000
• Country Club Bank, $140,000
• Crews & Associates, $250,000
• Duncan-Williams, $250,000
• Edward D. Jones, $100,000
• Estrada Hinojosa, $40,000
• Fifth Third Securities, $20,000
• Frazer Lanier, $100,000
• J.J.B. Hilliard, W.L. Lyons, $420,000
• Joe Jolly, $100,000
• Mesirow Financial,$100,000
• Northland Securities, $220,000
• NW Capital Markets, $100,000
• PNC Capital Markets, $500,000
• Prager, $100,000
• Ross, Sinclaire, $220,000
• UBS Financial Services, $480,000
• UMB Bank, N.A. Investment Banking Division, $420,000
• U.S. Bank Municipal Securities Group, a Division of U.S. Bank National Association, $60,000

ALSO READ: 4 Top Merrill Lynch US Defensive Stock Ideas for Q4