BD Hit Hard in Muni Pay-to-Play Action
A large broker-dealer firm agreed to pay $75 Million and forfeit more than $647 million in swap fees in connection with failing to disclose payments made to win municipal underwriting business. The SEC alleges that the respondent agreed to make significant payments to local firms that had political connections to county commissioners that awarded underwriting and swap business. The SEC alleges that the recipients provided no services and that the respondent failed to disclose the payments to investors. The SEC claims that it received much of its information via taped telephone conversations. The respondent agreed to make a $50 Million payment to benefit county employees, pay a $25 Million penalty, and forfeit over $647 million in amounts owed under the swap agreements. The SEC is also pursuing an action against two managing directors of the firm.
OUR TAKE: We question whether disclosure would have made any difference. We suspect this is really a pay-to-play case. Nevertheless, firms should take note of the SEC’s continuing prosecution of solicitor payments in the public funds arena. Also, the revamped Enforcement Division is showing its willingness to use criminal prosecutorial tactics like taping telephone conversations.