LawFuel – Securities Newswire
Regional Brokers, Inc. Ordered to Pay $100,000 Penalty; Discount Munibrokers’ Broker-Dealer Registration Revoked
Washington, D.C., Sept. 27, 2007 – The Securities and Exchange Commission today instituted settled enforcement actions against two broker-dealers and their CEOs for fraudulent auction practices in the municipal bond market. A supervisor at one of the firms also was charged in the proceedings with supervisory failures.
SEC Chairman Christopher Cox said, “Integrity in the municipal bond market is vital to every investor, taxpayer, and business in America. Today’s enforcement actions underscore the Commission’s resolve to ensure honesty and fairness in the municipal securities markets that help finance our schools, our roads, our retirements and even our drinking water.”
Linda Chatman Thomsen, Director of the Commission’s Division of Enforcement, said, “The investing public relies upon broker-dealers and their representatives to design and enforce procedures to prevent and detect fraudulent conduct. Today’s enforcement actions emphasize the Commission’s commitment to pursuing actions against firms and individuals who neglect these fundamental responsibilities, especially in cases where the principals at the firm are involved in the fraudulent conduct.”
The Commission issued Orders against Philadelphia-based Regional Brokers, Inc., and its CEO Patrick Lubin; and against Cherry Hill, N.J.-based D.M. Keck & Company, Inc. (doing business as Discount Munibrokers), CEO Donald Michael Keck, and a supervisor, Patricia Ann Sealaus. The firms served as “broker’s brokers” in auctions by providing brokerage services exclusively for municipal securities dealers.
The Orders make the following findings:
· Regional was placing bids on municipal bonds in auctions where Regional was acting as the broker’s broker, without the intent of ever purchasing the bonds. Often, these bids were placed as the second highest bid, known as the “cover bid,” after the high bid had already been made, and right before the close of the auction. Regional deceived its customers by fraudulently giving the appearance that Regional was conducting municipal bond auctions with tighter spreads and by creating the illusion of additional interest in the bonds.
· Regional consistently accepted late bids in “Sharp Time” auctions with knowledge that the bidding broker-dealer’s late bid was the highest – and therefore the winning – bid in the auction. This conduct favored the late bidder and disadvantaged other auction participants who had submitted their bids within the required Sharp Time and who had less time to prepare their bids in accordance with the explicit terms of the auction.
· Similar to the conduct at Regional, Discount Munibrokers disseminated fake bids in auctions it conducted in an effort to convince the high bidders that the auctions were more competitive than they really were or to meet minimum bid requirements imposed by certain broker-dealers attempting to sell securities through the auction process.
· Discount Munibrokers also engaged in an “adjusted trading” scheme with a municipal securities trader at another broker-dealer. Specifically, on certain municipal bond sales brokered by Discount Munibrokers the firm paid the other broker-dealer proceeds from sales that were substantially greater than the actual prices paid by the purchasers in those transactions. To make up Discount Munibrokers’ losses on those transactions, on other sales, the same selling broker-dealer received proceeds that were substantially less than what was paid by the purchasers. Discount Munibrokers reported the fictitious prices used in the adjusted trading scheme to the market as the actual prices paid on the transactions.
· Regional, Discount Munibrokers, Lubin, Keck and Seelaus each failed to supervise traders at their respective firms and the two firms failed to maintain proper books and records.
The Commission’s Orders impose a $100,000 penalty against Regional and revoke Discount Munibrokers’ broker-dealer registration. The Commission’s Order against Regional requires that Regional certify to the Commission within six months that it has implemented new procedures in order to prevent and detect similar conduct in the future. The Commission’s Orders also impose a $50,000 civil money penalty, permanent supervisory bar and one-year associational bar against Regional’s CEO Lubin, a $15,000 civil money penalty, five-year supervisory bar and one-year associational bar against Discount Munibrokers’ CEO Keck, and a five-year supervisory bar against Discount Munibrokers’ supervisor, Seelaus.
The Commission’s Orders charge Regional, Lubin, Discount Munibrokers, Keck and Seelaus with violating and/or aiding and abetting violations of the antifraud and books and records provisions of the federal securities laws and various Municipal Securities Rulemaking Board rules. All parties consented to the issuance of the Orders without admitting or denying the Commission’s findings.
The Commission acknowledges the assistance of the Financial Industry Regulatory Authority (formerly known as the National Association of Securities Dealers or NASD) and the Municipal Securities Rulemaking Board.