Thirteen Firms Sanctioned for Improper Sales of Puerto Rican Bonds

The Securities and Exchange Commission (SEC) recently fined 13 financial firms for selling risky Puerto Rican bonds to retail clients beneath the minimum allotment of $100,000 for a single transaction.

To shut out small investors and protect those who may not be able to withstand large losses on risky offerings, the SEC mandates that municipal bonds can only be sold in a ‘minimum denomination’ of $100,000 per transaction.

But earlier this year, an SEC investigation into the trading of securities from a $3.5 billion Puerto Rican junk-bond offering found 66 incidents of sales under $100,000. The general-obligation deal represents the largest speculative-grade tax-exempt sale ever, and these were the first cases the SEC pursued under the minimum-denomination rule.

The 13 firms which agreed to settle with the SEC received penalties ranging from $54,000 to $130,000. They include Charles Schwab & Co. ($61,800), J.P. Morgan Securities ($54,000), Lebenthal & Co. ($54,000), Oppenheimer & Co. ($61,200), TD Ameritrade ($100,800), UBS Financial Services ($56,400) and Wedbush Securities Inc. ($67,200).

While none of the firms admitted wrongdoing, they all agreed to be censured and to review their policies and procedures.

Andrew Ceresney, director of the SEC Division of Enforcement, said that the imposed sanctions demonstrate the agency’s commitment to rigorous enforcement of all types of violations in the municipal bond market in order to protect investors.

Since the market for instruments declined significantly in 2013, financial firms have been bedeviled by steep losses on Puerto Rican bonds.

The team of investment fraud lawyers at Starr Austen & Miller LLP handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence, broker churning, breach of trust, as well as malpractice.

Sources: Investment News and Bloomberg News