An Arkansas-based broker-dealer and its former CEO settled SEC charges for fair dealing violations arising from a municipal bond tender offer.
In separate orders, the SEC found that, at the instruction of the former CEO, the broker-dealer recommended to a West Virginia county that it (i) effect a tender offer for bonds issued in 2006 in order to decrease its outstanding debt service expense, (ii) offer to purchase the outstanding bonds from the bondholders and (iii) bankroll the purchase of the bonds by selling new bonds with a lower interest rate that the broker-dealer would underwrite. According to the SEC’s findings, the broker-dealer and its former CEO failed to disclose to the county when making those recommendations that it and its affiliates had recently purchased and sold a significant amount of the bonds that were the subject of the tender offer, which bonds were then sold back to the county at a significant profit.
As a result of its findings, the SEC determined that (i) the broker-dealer and its former CEO violated MSRB Rules G-17 (“Conduct of Municipal Securities and Municipal Advisory Activities”) and G-27 (“Supervision”) and (ii) the former CEO caused the broker-dealer to violate Section 15B(c)(1) (“Discipline of municipal securities dealers; censure; suspension or revocation of registration; other sanctions; investigations”) of the Exchange Act.
To settle the charges, the broker-dealer and former CEO each agreed to (i) a censure, (ii) cease and desist from future violations, (iii) pay $44,072 and $46,481 in disgorgement and prejudgment interest, respectively, and (iv) pay $200,000 and $100,000 in civil money penalties, respectively. In addition, the former CEO agreed to “certain undertakings and limitations on activities.”
Cadwalader Wickersham & Taft LLP
August 26 2021