The U.S. Securities and Exchange Commission announced today it has sanctioned 13 firms for violating a rule designed to protect retail municipal bond investors. All municipal bond offerings include a “minimum denomination” that sets the smallest dollar amount of the bonds that a brokerage firm is permitted to sell to an investor in a single transaction. These minimums usually are set at a higher level for riskier “junk bonds,” which may be unsuitable investments for certain retail investors because of their high level of risk. The higher minimum is supposed to ensure that only investors who can afford the investment and who are more able to accept the higher risk of the junk bonds. At its heart, this rule is supposed to prevent unsuitable investments being sold to retail investors.
The SEC found that 13 brokerage firms made sales below the $100,000 minimum sale established for a $3.5 billion offering of Commonwealth of Puerto Rico junk bonds earlier this year. The SEC also found that these 13 firms made a total of 66 of the improper sales. The SEC has fined the following firms for those improper sales: Charles Schwab & Co., Hapoalim Securities USA, Interactive Brokers LLC, Investment Professionals Inc., J.P. Morgan Securities, Lebenthal & Co., National Securities Corporation, Oppenheimer & Co., Riedl First Securities Co. of Kansas, Stifel Nicolaus & Co., TD Ameritrade, UBS Financial Services, and Wedbush Securities. The firms agreed to pay penalties ranging from $54,000 to $130,000.
Dimond Kaplan & Rothstein, P.A.’s FINRA arbitration lawyers currently represent more than 100 investors who lost money in Puerto Rico junk bonds and Puerto Rico bond funds. Our firm has represented Puerto Rico investors for a number of years involving losses in unsuitably risk securities.