Edward Jones to pay $20M to settle federal bond sales probe

13 Aug 2015 | Author: | No comments yet »

Edward Jones Neither Admits Nor Denies, to Pay $20 Million for Overcharging Customers.

Brokerage firm Edward Jones has agreed to pay $20 million to settle charges that it overcharged clients in new municipal bond sales, the Securities and Exchange Commission said Thursday. Edward Jones also was charged with separate misconduct related to supervisory failures in its review of certain secondary market municipal bond trades. The SEC says the ex-chief of Edward Jones’ municipal bond underwriting desk, Stina Wishman, will pay $15,000 and be barred from working in securities for at least two years.

But instead of offering the bonds to customers at that negotiated price, Edward Jones allegedly brought the bonds into Edward Jones’ own inventory and then later offered them to customers at higher prices, sometimes after the bonds had already begun to trade in the secondary market, according to the SEC. Municipal bond underwriters are required to offer new bonds to their customers at what is known as the “initial offering price,” which is negotiated with the issuer of the bonds. It alleged in June that 36 underwriters, including some of the largest U.S. banks, sold bonds for localities that failed to make adequate financial disclosures to investors. In one instance, the misconduct resulted in an adverse federal tax determination for an issuer and put it at risk of losing valuable federal tax subsidies. Edward Jones agreed to settle the case by paying more than $20 million, which includes nearly $5.2 million in disgorgement and prejudgment interest that will be distributed to current and former customers who were overcharged for the bonds. “Edward Jones undermined the integrity of the bond underwriting process by overcharging retail customers by at least $4.6 million and by misleading municipal issuers,” said Andrew J.

Ceresney, director of the SEC’s Enforcement Division, said in a statement. “This enforcement action, which is the first of its kind, reflects our commitment to addressing abuses in all areas of the municipal bond market.” All clients will have been reimbursed under the settlement, Mr. The SEC’s investigation found that Edward Jones’ supervisory system was not designed to monitor whether the markups it charged customers for certain trades were reasonable. “Because current rules do not require dealers to disclose markups on municipal bonds, investors receive very little information about their dealer’s compensation in municipal bond trades,” said LeeAnn Ghazil Gaunt, Chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit. “It is therefore important that firms have adequate supervisory systems to ensure that they are complying with their fair pricing obligations.”

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