The SEC has charged four underwriting firms with failing to meet legal requirements exempting them from getting disclosures in certain municipal bond offerings. It’s the first time the SEC has taken such action.

The SEC first filed a litigated action on September 13 2022 against Oppenheimer & Co. Inc. and then separately announced settlements with BNY Mellon Capital Markets LLC, TD Securities (USA) LLC, and Jefferies LLC. All had failed to comply with legal requirements that must be provided to investors while handling municipal bond offerings.

Since 2017, the four firms have sold new issue municipal bonds without securing required disclosures for investors. Each firm stated that it had relied on the limited offering exemption, but the SEC found that the firms did not take the necessary steps to fulfil the exemption’s criteria.

“I applaud the excellent work of the Division’s Public Finance Abuse Unit in bringing these first-ever actions in the $4trn municipal bond space,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “We encourage underwriters to examine their practices and to self-report any failures to us before we identify them ourselves.”

The SEC’s orders found that BNY Mellon Capital Markets LLC, TD Securities LLC, and Jefferies LLC BNY, each violated Rule 15c2-12 under the Securities Exchange Act of 1934, as well as Municipal Securities Rulemaking Board (MSRB) Rule G-27 and Section 15B(c)(1) of the Exchange Act.

The three firms have neither admitted or denied the SEC’s findings, but all three have agreed to settle the charges, cease and desist from future violations of those provisions, be censured, and pay the following monetary relief:

• BNY: $656,833.56 in disgorgement plus prejudgment interest and a $300,000 penalty;
• TD: $52,955.92 in disgorgement plus prejudgment interest and a $100,000 penalty; and
• Jefferies: $43,215.22 in disgorgement plus prejudgment interest and a $100,000 penalty.

Violations in 354 offerings

Oppenheimer & Co is facing charges on the same violations as above in connection with at least 354 offerings. The SEC complaint also stated that Oppenheimer made misleading statements to issuers in violation of MSRB Rule G-17. The complaint, which was filed in federal district court in Manhattan, seeks permanent injunctions, disgorgement plus prejudgment interest, and a civil money penalty.

“Disclosure helps protect investors from fraud,” said LeeAnn G. Gaunt, Chief of the SEC Enforcement Division’s Public Finance Abuse Unit. “Underwriters must take seriously their responsibility to ensure municipal bond investors get the information they are entitled to.”  

As a reaction to the results of these investigations, SEC has started investigating other firms’ reliance on the limited offering exemption too.