The Securities and Exchange Commission (SEC) took a major step this week with its efforts to clean up municipal bond underwriting with the announcement of a $20 million settlement with brokerage firm Edward Jones.
An SEC investigation found that Edward Jones, based in St. Louis, neglected to offer customers new bonds at the standard “initial offering price” and instead offered the bonds at higher prices that came from the firm’s own inventory.
The SEC also found that in some cases Edward Jones waited to offer bonds to customers until after trading commenced in the secondary market and prices were significantly higher than the initial offering prices. This exploitation cost customers more than $4.6 in excess payments.
The settlement calls for Edward Jones to pay $5.2 million to current and former customers who overpaid for their bonds as part of the settlement.
Andrew J. Ceresney, director of the SEC Enforcement Division, stated that “This enforcement action, which is the first of its kind, reflects our commitment to addressing abuses in all areas of the municipal bond market.” We expect to see the SEC bring more of these types of cases.