SEC fines big banks and brokers over fraudulent bond deals

The Securities and Exchange Commission alleges that 36 companies, including Wall Street’s biggest banks, sold bonds for municipalities that failed to make adequate financial disclosures to investors.

Bank of America’s Merrill Lynch unit, Citigroup, Goldman Sachs Group, JPMorgan Chase and Morgan Stanley each settled with the SEC and will pay $500,000, according to a statement Thursday.

The settlement also involved George K. Baum & Co., a Kansas City-based investment firm, which agreed to a $250,000 settlement.

The SEC said the 36 securities firms neither admitted nor denied the findings. The penalties were capped based on a firm’s size.

Baum & Co. said in a statement that “now that this is behind us, we will continue to focus on the interests of our clients.”

The SEC said offering documents for deals they sold contained false information or material omissions about borrowers’ compliance with the law.

The penalties are the first against underwriters to result from an offer of leniency to banks and municipalities that reported running afoul of securities laws. It’s part of a crackdown on borrowers in the $3.6 trillion local government bond market who fail to provide key information to investors.

The initiative “has already resulted in significant improvements to the municipal securities market, including heightened awareness of issuers’ disclosure obligations,” SEC chair Mary Jo White said in the statement. “This ongoing enforcement initiative will continue to bring lasting changes to the municipal securities markets for the benefit of investors.”

Bank of America, Goldman Sachs and Morgan Stanley declined to comment, and JPMorgan didn’t return phone and email messages. Spokesman Scott Helfman said Citigroup was “pleased to have the matter resolved.”

This story was originally published June 18, 2015 at 1:26 PM with the headline "SEC fines big banks and brokers over fraudulent bond deals."