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
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.
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