24 August 2017

Edward Jones to Pay for Municipal Bond Overcharges

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Financial firm Edward Jones will pay $20 million in penalties for overcharging customers in municipal bond sales, the Securities and Exchange Commission said Thursday. An SEC investigation focused on the nation's $3.7 trillion municipal market found securities law violations in the St. Louis, Mo.-based brokerage's handling of some primary and secondary bond sales from 2009 to 2013. States, cities and other government jurisdictions typically issue municipal bonds to finance long-term public projects.

Underwriters are required to offer new municipal bonds to customers at the so-called initial offering price negotiated with the bond issuers. But the SEC found Edward Jones and the former head of its municipal underwriting desk took new bonds into the brokerage's inventory and sold them at higher prices.

Customers paid at least $4.6 million in overcharges as a result, the SEC said. One bond issuer was required to pay the IRS after losing a federal tax subsidy as a result of the improper actions, the SEC said. Edward Jones and the firm's former municipal underwriting executive, Stina Wishman, consented to SEC settlements without admitting or denying the regulator's allegations of securities law violations.

The brokerage will pay more than $20 million, including nearly $5.2 million in disgorgement and prejudgment interest that will be distributed to current and former customers who were overcharged, the SEC said. Wishman agreed to pay a $15,000 penalty and accept being barred from the securities industry for at least two years.

The SEC separately charged Edward Jones with supervisory failures related to the brokerage's review of certain secondary market municipal bond trades. The allegations focused on transactions in which the brokerage bought municipal bonds from customers, placed them in the firm's inventory, and then sold them to other customers, often within the same day.

Due to the short holding periods, the brokerage faced little risk and almost never suffered financial losses on such intra-day trades. SEC investigators concluded that Edward Jones' supervisory system was not designed to monitor whether markups the brokerage charged on the trades were reasonable.

Click here to access the full article on USA Today.

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