Edward D. Jones & Co., the brokerage firm subsidiary of Jones Financial Companies, has consented to pay $20 million to resolve U.S. Securities and Exchange Commission allegations accusing the firm of overcharging clients by at least $4.6 million on new municipal bond sales. The regulator contends that the brokerage firm offered bonds at a higher price than what securities laws require.
Underwriters are supposed to sell new bonds at an initial offering price that was negotiated with the bond issuer. The SEC claims that instead of offering the municipal bonds to customers at the worked out price, the firm allegedly brought the bonds into its own inventory and then later sold them at high prices. Also, said the Commission, in certain instances the bonds were offered to customers after they had already started to trade in the secondary market at higher prices than what was initially offered.
The regulator said that at the very least Edwards Jones was negligent with the overcharges and its behavior was “inconsistent” with the standards and written agreements that govern municipal underwriting. The SEC says it will continue its probe into the matter.
Edward Jones is settling without denying or admitting to the SEC findings. Part of the $20 million fine is a $5.2 million disgorgement plus interest that will be paid to customers that were charged too much for their muni bond purchase.
Edward Jones spokesperson John Boul says that all clients have been reimbursed under the case settlement. He said that $5.2 million would be repayed to about 13,000 clients.
The Sec also charged Edward Jones with failing to have a supervisory system that could ensure that markups on certain transactions were reasonable. The failures purportedly involved dealer markups on secondary market trades that involved the broker dealer buying municipal bonds from customers, putting them into its inventory, and selling them to other customers, all in the same day. The regulator said that due to the short holding periods, the firm did not face much of a risk as a principal and hardly experienced any losses on these trades.
Meantime, Stina R. Wishman, who is the head of the broker dealer’s municipal bond underwriting desk, has been barred from the industry for two years.
The SEC said that from at least February 2009 to December 2012, she obtained new issue municipal bonds for the firm’s inventory in a number of negotiated offerings and offered these bonds to customers at prices that were higher than the initial offering prices that had been worked out with the issuer before the bonds were traded. The regulator said that in certain instances, Wishman did not offer these bonds to customers at all until after trading started. Then, she would offer and sell the bonds to Edward Jones customers at prices that exceeded the initial offering prices. Wishman consented to pay $15,000 to resolve the charges.
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