Edward Jones to pay $20M for municipal bond overcharges

August 14 01:08 2015

Financial firm Edward Jones will pay $20 million in penalties for overcharging customers in municipal bond sales, the Securities and Exchange Commission said Thursday. An SEC investigation focused on the nation’s $3.7 trillion municipal market found securities law violations in the St. Louis, Mo.-based brokerage’s handling of some primary and secondary bond sales from 2009 to 2013. States, cities and other government jurisdictions typically issue municipal bonds to finance long-term public projects.

Underwriters are required to offer new municipal bonds to customers at the so-called initial offering price negotiated with the bond issuers. But the SEC found Edward Jones and the former head of its municipal underwriting desk took new bonds into the brokerage’s inventory and sold them at higher prices. Additionally, the brokerage sometimes held new bonds until trading started in the secondary market, and then offered them to customers at costs higher than the initial offering price, the SEC said.

Customers paid at least $4.6 million in overcharges as a result, the SEC said. One bond issuer was required to pay the IRS after losing a federal tax subsidy as a result of the improper actions, the SEC said. Edward Jones and the firm’s former municipal underwriting executive, Stina Wishman, consented to SEC settlements without admitting or denying the regulator’s allegations of securities law violations.

The brokerage will pay more than $20 million, including nearly $5.2 million in disgorgement and prejudgment interest that will be distributed to current and former customers who were overcharged, the SEC said. Wishman agreed to pay a $15,000 penalty and accept being barred from the securities industry for at least two years. Edward Jones spokesman John Boul said the brokerage cooperated with SEC investigators and corrected the practices at issue. About 13,000 current or former Edward Jones clients “will be fully compensated, with interest, under the terms of the settlement,” said Boul, who added that the company is “happy to put this matter behind us.”