Liquidating Agent Used Pricing Info to Purchase Bonds Itself
The SEC ordered a broker-dealer to pay $1.1 Million in disgorgement and interest and barred its principal from the industry for misusing confidential information when acting as a CDO liquidation agent. The SEC alleges that the respondent communicated bid prices to a third party broker-dealer so that it could submit a bid slightly higher than the independent bids and thereby purchase the bonds for the benefit of the respondent’s affiliated adviser clients. The SEC states that purchasing the bonds through the third party broker-dealer violated the firm’s agreement to serve as liquidation agent as well as its compliance manual. The SEC ordered disgorgement of the fees earned as a liquidation agent.
OUR TAKE: The SEC will take action where an insider misuses his/her/its position to benefit either the insider or clients thereof. Advisers and broker-dealers should reconsider serving as liquidation agents given the potential conflicts of interest. Noteworthy is that the liquidating trust actually received more proceeds due to the alleged misconduct because the third party broker-dealer generally submitted bids that were higher than the independent bids. Perhaps, that is how the respondent justified the conduct.