By Sue Reisinger, From Corporate Counsel

Banking in-house counsel have been waiting for another shoe to drop, and Thursday it landed—but softly. The U.S. Securities and Exchange Commission said it took action against 36 underwriting firms for violating rules in the $3.7 trillion municipal bond market.

The firms will pay civil penalties ranging from $40,000 to $500,000, based on the number and size of the fraudulent offerings, and on the size of the firm.

Ten companies agreed to pay the maximum $500,000 penalty. That is a relatively small amount compared with other recent bank fines that have reached more than $1 billion, but those fines were for more serious infractions.

In addition, the firms agreed to cease and desist from any similar violations in the future, and to retain an independent consultant to conduct a compliance review and take reasonable steps to implement the consultant’s recommendations. The 36 companies did not admit or deny the findings against them.

Among the names were some familiar ones to anyone following recent SEC and U.S. Department of Justice actions against major banks, along with some less-familiar ones.

Agreeing to pay the maximum penalty were:

Citigroup Global Markets Inc.

Goldman, Sachs & Co.

J.P. Morgan Securities

Bank of America/Merrill Lynch, Pierce, Fenner & Smith Inc.

Morgan Stanley & Co.

Minneapolis-based Piper Jaffray & Co.

St. Petersburg, Florida-based Raymond James & Associates Inc.

RBC Capital Markets, part of the Royal Bank of Canada

Milwaukee-based Robert W. Baird & Co. Inc.

St. Louis-based Stifel, Nicolaus & Co. Inc.

Coincidentally Stifel had announced June 8 that it was acquiring Barclays’ wealth and investment management in the Americas.

Contacted by CorpCounsel.com, Scott Helfman at Citigroup said, “We are pleased to have the matter resolved.” Goldman Sachs, J.P. Morgan, Merrill Lynch, Morgan Stanley and Raymond James all declined to comment. The four other firms didn’t immediately respond to messages.

A list of all 36 firms and their penalty amounts is available on the SEC website.

The SEC alleged that between 2010 and 2014 those firms violated federal securities laws by selling municipal bonds using documents that contained materially false statements or omissions about the bond issuers’ compliance with disclosure rules. The companies also allegedly failed to conduct adequate due diligence to identify the misstatements and omissions.

The cases are the first brought against underwriters under the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative, a voluntary self-reporting program targeting material misstatements and omissions in municipal bond offerings.

The initiative, announced in March 2014, offers favorable settlement terms to municipal bond underwriters and issuers that self-report securities law violations, as these companies did—hence the “soft” landing of the shoe.

“The MCDC initiative has already resulted in significant improvements to the municipal securities market, including heightened awareness of issuers’ disclosure obligations and enhanced disclosure policies and procedures,” said SEC Chairwoman Mary Jo White in a statement. “This ongoing enforcement initiative will continue to bring lasting changes to the municipal securities markets for the benefit of investors.”

Photo: Diego M. Radzinschi

For more on this story go to: http://www.corpcounsel.com/id=1202729863569/SEC-Charges-36-Firms-With-Bond-Market-Violations#ixzz3doSFNz2p