UPDATE 3-U.S. SEC charges 36 firms over fraudulent muni bond offerings

Thu Jun 18, 2015 5:17pm EDT
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(Adds industry comment)

By Sarah N. Lynch

WASHINGTON, June 18 (Reuters) - Thirty six municipal bond underwriters operating in the $3.7 trillion muni market will collectively pay about $9 million to settle civil charges over fraudulent offerings, as part of the first pact of its kind with U.S. regulators.

The U.S. Securities and Exchange Commission said on Thursday that the charges stemmed from a March 2014 invitation to brokers and bond issuers to voluntarily report disclosure violations in offering documents, such as material misstatements and omissions.

"(It is) putting everyone on notice here that if there was any laxity on disclosure in the past it won't be tolerated in the future," said Richard Ciccarone, head of Iowa-based Merritt Research Services.

The cases were the first under the program intended to increase transparency in a lightly regulated sector.

Andrew Ceresney, head of the SEC's enforcement division, said the firms represented about 70 percent of the dollar value of all municipal bonds issued in the United States during the four years ended on Sept. 30.

Among the firms charged include units of banks such as Bank of America Merrill Lynch, BNY Mellon, Goldman Sachs, Citigroup, JP Morgan, Royal Bank of Canada and Morgan Stanley. All have agreed to settle the charges without admitting or denying the allegations.

In exchange for self-reporting, issuers and underwriters were told they would receive favorable settlement terms.   Continued...