SEC Fines Edward Jones $20 Million for Overcharging Retail Customers in Municipal Bond Underwritings
The Securities and Exchange Commission (SEC) issued a press release announcing that Edward Jones and the former head of its municipal underwriting desk agreed to settle claims that they overcharged customers in new municipal bonds sales. According to the release, Edward Jones was also was charged with separate misconduct related to supervisory failures in its review of certain secondary market municipal bond trades.
As a background, municipal bond underwriters like Edward Jones are required to offer new bonds to their customers at the “initial offering price” that is negotiated with the issuer of the bonds. The SEC’s investigation focused on and found that instead of offering bonds to customers at the initial offering price Edward Jones and Stina Wishman (Wishman) placed certain new bonds into Edward Jones’ own inventory and then offered them to customers at higher prices. This conduct was found by the agency to be improper. In certain other instances, the SEC alleged that Edward Jones refrained from offering the bonds to its customers until trading commenced in the secondary market allowing the firm to offer the bonds at prices higher than the initial offering prices. In total, the SEC found that Edward Jones’ customers paid at least $4.6 million more than they should have for bonds. In addition to the unfairness to investors the SEC also found that in one instance the misconduct resulted in an adverse federal tax determination for an issuer jeopardizing the issuer’s valuable federal tax subsidies.
The Edward Jones settlement includes payment of more than $20 million including nearly $5.2 million in disgorgement and prejudgment interest that will be distributed to current and former customers effected by the overcharged bonds. Wishman will pay $15,000 and will be barred from the securities industry for at least two years under the terms of the agreement.
According to the SEC, the firm’s additional supervisory failures related to dealer markups on secondary market trades when the firm purchased municipal bonds from customers, placed the bonds into inventory, and then sold the bonds to other customers, sometimes within the same day. The SEC found that because of the short holding periods Edward Jones faced little risk as a principal and rarely experienced losses on these intraday trades. The SEC concluded that Edward Jones’ supervisory system was not designed to monitor whether these markups it charged customers were in fact reasonable under the circumstances.
As part of the order, Edward Jones agreed to undertake a number of remedial efforts including disclosing the percentage and dollar amount of markups on all fixed income retail order trade confirmations in principal transactions.
Investors who have suffered losses may be able recover their losses through securities arbitration. The investment attorneys at Gana LLP are experienced in representing investors in cases where their broker has acted inappropriately. Our consultations are free of charge and the firm is only compensated if you recover.