Monday, June 22, 2015

City Securities Fined $250,000 For Municipal Securities Offering Violations

The Securities & Exchange Commission announced a $250,000 fine against Indianapolis-based City Securities in connection with the sale of two municipal security offerings. According to the agreed order, City Securities acknowledged failures in conducting adequate due diligence in the offerings, which resulted in the securities brokerage firm being unable to form a reasonable basis for believing the truthfulness of certain material representations in official statements issued in connection with those offerings. The agreed order notes that City Securities self-reported the violations.

In a separate story, the IBJ reports that the Financial Industry Regulatory Authority ("FINRA") suspended one of City Securities' brokers for 20 days for allegedly executing client security trades without written authorization. John Cody Miller, a securities broker and investment adviser, served the 20-day suspension from May 4 through June 1 and agreed to pay a $10,000 fine. According to the IBJ, Miller settled a previous customer dispute in 2007 for allegedly tendering share options without a client's consent after paying a settlement fee of $14,884.

Two years ago, City Securities paid a fine of $580,000 in connection with municipal security offerings, including:underwriting public offerings that contained material misrepresentations; defrauding taxpayers by billing expenses from bond proceeds not permitted by law; and making illegal gifts and gratuities to public officials involved in municipal bond offerings. One of its brokers, Randy Ruhl, agreed to serve a one-year suspension and pay a $38,475 fine. Michael Bosway is City Securities President & CEO. Its directors includes John Biddinger, Mark Miles and Mark Lubbers.


Sir Hailstone said...

The SEC order does not indicate the municipality which the bonds were sold, if they were even sold on behalf of an Indiana municipality. Curious as to who wrote the official statements on behalf of the municipality - Umbaugh?

Had Enough Indy? said...

Do we know what statements were inaccurate? Or are bond holders left in the dark along with the public?

Gary R. Welsh said...

The order is pretty vague.

Anonymous said...

Wonder how much campaign money is being funneled into Smokin Joe Hogsett's mayoral campaign as payback for him not bringing charges in the 2013 criminal case referred to him by the SEC?

Anonymous said...

Bond issuer here, but not a City client.

1. Every major u/w firm got hit with fines last week. This was a "shakedown" by the SEC going after failures to verify information supplied by the Issuer and included in the official statement. So while the Issuer gave improper information, the u/w gets nailed because they failed to verify the accuracy.

2. EMMA is the official repository for all issuer filings and is free to the public to use. A bond investor can go to that website and verify if all of the necessary filings have been made (think of buying a house and the seller tells you that the taxes are current but you go onto the assessors website and see that they in fact are not).

3. The SEC is going after u/w's first. Issuers will be the next to be cited and fined.

4. Note there is no indication that any bonds are in fact in default or have defaulted for u/w's cited currently under the program.

5. This was all brought under something called the MCDC (Municipalities Continuing Disclosure Cooperative) and some have called it the largest unfunded mandate on state and local governments. This was because every bank and bond issuer had to go back and verify they had made all required filings (for issuers) or verified that issuers had made filings that they said they did (u/w). A lot of issuers and u/w firms didn't have that capacity in house and contracted it out to accounting firms, law firms, etc... (might want to see how much $ the big law firms in town made off of this compliance last year). U/w's and Issuers were then to self-report their failings. Both were encouraged to file everything because if i as an issuer report that my 2010 bond issue had an incorrect statement, but XYZ bank doesn't report it, they are in trouble. Same goes for the reverse. Prisoners dilemma but with $ on the line.

6. Question is did City self report or were those from Issuer submissions? Tough to tell right now.

7. The million dollar question is yet to drop. Does a bond investor have a cause of action over a misstatement in an Official Statement that was brought to light because of MCDC?

Anonymous said...

Why did the IBJ report on this minor kerfuffle involving this City Securities employee who got suspended for 20 days and paid a small fine and ignore the large fine imposed by the SEC against his employer?