Edward Jones & Co. will pay $20 million to settle U.S. Securities and Exchange Commission claims that the St. Louis-based brokerage and its former head of municipal underwriting overcharged customers in new bond sales.
In its first case against a muni-bond underwriter for pricing-related fraud in the primary market, the SEC accused Edward Jones and Stina R. Wishman of improperly offering securities to customers at higher prices after taking them into its own inventory. Investors paid at least $4.6 million more than they should have, the SEC said in a statement Thursday.
“The integrity and efficiency of the municipal securities market is critical to state and local governments,” Andrew Ceresney, director of the SEC’s enforcement division, said Thursday in a conference call with reporters. “The actions filed today shine a light on areas of the market that have traditionally had little enforcement attention.”
Ceresney declined to say whether the regulator was looking at similar practices among other underwriters.
Edward Jones will pay $20 million, including $5.2 million in disgorgement and interest. Wishman agreed to pay $15,000 and will be barred from working in the securities industry for two years. Wishman and the firm neither admitted nor denied the findings.
The SEC has stepped up efforts to crack down on issuers and Wall Street firms involved in the $3.6 trillion municipal market. It alleged in June that 36 underwriters, including some of the largest U.S. banks, sold bonds for localities that failed to make adequate financial disclosures to investors.
From 2009 to 2012, Edward Jones didn’t offer or attempt to offer new bonds to its customers at the initial offering price, allowing the firm to mark up the securities, Ceresney said. The SEC’s investigation found that the company’s supervisory system failed to monitor whether the higher prices were reasonable.
The firm now discloses both the percentage and dollar amount of markups on fixed-income trade confirmations among individual investors, according to the SEC statement.
“The SEC expressly acknowledges that we’ve taken positive steps to correct the past practices and generally to enhance the operation of the municipal-bond area,” John Boul, a spokesman for Edward Jones, said in an interview. “We’re happy the matter is resolved and behind us.”