SEC charges RBC and two execs with Municipal Bond Rules Violations
According to a press release on September 17, the Securities and Exchange Commission announced that RBC Capital Markets LLC will pay more than $800,000 to resolve charges that it engaged in unfair dealing in municipal bond offerings. The SEC also announced settled charges against RBC’s former head of Municipal Sales, Trading and Syndication, and the head of RBC’s municipal syndicate desk.
Over a four-year period, RBC allegedly improperly allocated bonds intended for institutional customers and dealers to parties known in the industry as “flippers,” who then resold or “flipped” the bonds to other broker-dealers at a profit, according to the complaint.
Further, in three instances where an issuer had instructed RBC to place retail customer orders first, RBC purportedly violated those instructions by allocating bonds to flippers ahead of orders for retail customers. The order finds that RBC knew or should have known that flippers were not eligible for retail or institutional priority and that allocating bonds to the flippers ahead of customers and other dealers violated RBC’s internal priority policy for allocating municipal bonds in primary offerings, according to the complaint.
RBC also allegedly obtained bonds for its own inventory by placing orders with flippers, which allowed the firm to circumvent the lower priority it would have been assigned had it attempted to place direct orders with the underwriters.
RBC reportedly consented to a public administrative and cease-and-desist order that finds it violated the order disclosure, fair dealing, and supervisory provisions of Municipal Securities Rulemaking Board (MSRB) Rules and the related Exchange Act provision, caused the flippers’ violations of the broker registration provisions of the Exchange Act, and failed reasonably to supervise certain of its registered representatives within the meaning of the Exchange Act.
RBC will reportedly pay a $150,000 penalty, disgorgement of $552,440, plus prejudgment interest of $160,886, and agrees to a censure.
The SEC also brought charges of municipal bond offering “flipping” and alleged retail order period abuses in August 2018, December 2018, September 2019, April 2020, July 2020, September 2020, July 2021 and August 2021, according to the announcement.
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