For the first time, the Securities and Exchange Commission (SEC) penalized a broker-dealer for giving assistance to a municipal body without first becoming a municipal advisor registered with the organization.
From 2017 through 2019, Chicago-based Loop Capital Markets advised a city in the Midwest on the acquisition of fixed income securities, although the company was not registered as a municipal advisor as required by federal securities law. In addition, the SEC stated in a press release on Wednesday that Loop Capital "did not maintain a system reasonably designed to supervise its municipal securities activities and had inadequate procedures, including insufficient methods to identify potential violations of the municipal adviser registration rules."
Loop Capital consented to a $100,000 fine, $5,500 in disgorgement and prejudgment interest, and a censure without admitting or disputing the claims.
"The municipal adviser registration rules apply to all market participants and are intended to protect municipal entities from abuse," according to LeeAnn Ghazil Gaunt, head of the SEC Enforcement Division's Public Finance Abuse Unit. "Registered broker-dealers must either register as municipal advisers or refrain from engaging in municipal advisory activities."
According to SEC, Loop Capital failed to register as a municipal adviser for two years and had "inadequate procedures to enable its registered representatives to identify circumstances where a customer seeks advice with respect to the investment of municipal bond proceeds, inadequate training relating to the municipal adviser registration requirements, and inadequate electronic communication surveillance procedures to identify potential violations of the municipal adviser registration rules."
As a result, the SEC claimed that Loop Capital "failed to maintain a system to supervise the municipal securities activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws, regulations, and [Municipal Securities Rulemaking Board] rules." Loop Capital failed to recognize or stop such advice from being given to the municipal entity.
The firm responded by putting corrective measures in place, which included enhancing training, supervision, and supervisory processes, according to the ruling.
An inquiry for comments was not immediately answered by Loop Capital.
By fLEXI tEAM