Monday, November 3, 2014

The Securities and Exchange Commission Sanctions Brokers Over Sale of Puerto Rican Municipal Bonds

By Craig McCann, PhD, CFA Versión en Español

The Securities and Exchange Commission announced sanctions today against 13 brokerage firms for selling high risk Puerto Rican municipal bonds in March 2014 in denominations well below the $100,000 minimum specified in the offering circular. The SEC press release with links to the individual orders can be found here.

Kyle Glazier and Lynn Hume broke the story about small denomination trades in the Puerto Rico bond offering in contravention of the offering document in the Bond Buyer, Brokers Violate Puerto Rico OS, MSRB Rules with Retail Trades. The Wall Street Journal’s Finra Examining Trading in Puerto Rico Bonds and Bloomberg’s Finra Says It’s Examining Trading in New Puerto Rico Bonds both followed the Bond Buyer story and reported that FINRA was looking into the suspect trades.

The Puerto Rico offering document (available here) says the bonds can only be traded in denominations greater than $100,000. The Bond Buyer story pointed out that 70 customer trades in the first few days of trading (by 4:57 pm on March 18, 2014) were below this minimum denomination intended to protect investors.

Don’t look for these trades in the EMMA data. As we wrote about in The MSRB Re-Writes History, the MSRB edited the tape to delete or modify these trades even though they had already settled.


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