- Edward Jones headquarters in Missouri. Photo Courtesy of Edward Jones
St. Louis-based brokerage firm Edward Jones ”“ with more than 11,000 offices nationwide ”“ has agreed to settle charges brought by the Securities and Exchange Commission that it overcharged customers buying new municipal bonds.
Edward Jones agreed to pay more than $20 million, which includes nearly $5.2 million that will be distributed to customers who were overcharged for the bonds, the SEC announced this morning.
In addition, Stina R. Wishman, the former head of Edward Jones”™ municipal underwriting desk, agreed to pay $15,000 and will be barred from working in the securities industry for at least two years.
Both consented to the SEC order without admitting or denying the findings.
“Edward Jones undermined the integrity of the bond underwriting process by overcharging retail customers by at least $4.6 million and by misleading municipal issuers,” said Andrew J. Ceresney, director of the SEC Enforcement Division. “This enforcement action, which is the first of its kind, reflects our commitment to addressing abuses in all areas of the municipal bond market.”
The firm also was charged with separate misconduct related to supervisory failures in its review of certain secondary market municipal bond trades.
According to the law, municipal bond underwriters are required to offer new bonds at an initial offering price, which is the amount sought by the issuer of the bonds.
The SEC investigation found that instead of offering bonds at the asking price, Edward Jones and Wishman took new bonds into the brokerage”™s own inventory and “improperly offered them to customers at higher prices.”
The investigation also found that the brokerage “entirely refrained from offering the bonds to its customers until after trading commenced in the secondary market, and then offered the bonds at prices higher than the initial offering prices.” As a result of the action, customers paid at least $4.6 million more than they should have for the bonds.
The SEC”™s investigation found that Edward Jones”™ supervisory system was “not designed to monitor whether the markups it charged customers for certain trades were reasonable.”
The SEC stated, “the misconduct resulted in an adverse federal tax determination for an issuer and put it at risk of losing valuable federal tax subsidies.”
“Because current rules do not require dealers to disclose markups on municipal bonds, investors receive very little information about their dealer”™s compensation in municipal bond trades,” said LeeAnn Ghazil Gaunt, chief of the SEC Enforcement Division”™s Municipal Securities and Public Pensions Unit. “It is therefore important that firms have adequate supervisory systems to ensure that they are complying with their fair pricing obligations.”
According to the SEC, Edward Jones has undertaken “remedial efforts” and now discloses the percentage and dollar amount of markups “on all fixed income retail order trade confirmations in principal transactions.”
The SEC stated that its investigation is continuing.
