US SEC Records First Case of Broker-Dealer Municipal Advisor Violation

The United States Securities and Exchange Commission (SEC) announced on Wednesday that it had fined Loop Capital Markets, a Chicago-based investment bank and broker-dealer, $100,000 for violating the regulator’s municipal advisor registration rule.

The SEC said it charged the broker-dealer for providing advice to a municipal city in the country without being registered to do so.

The watchdog said Loop Capital Markets neither admitted nor denied its findings but agreed to pay the fine. The penalty comes with $5,456.73 in interest for disgorgement and prejudgment.

“The action marks the first time the SEC has charged a broker-dealer for violating the municipal advisor registration rule,” the market supervisor said in a press statement.

According to the regulator, between September 2017 and February 2019, Loop Capital Markets advised a city in the Midwest of the United States to invest in certain fixed-income securities.

The regulatory authority said the city purchased the securities based on the advice using its municipal bond issuances.

However, the SEC in an investigation conducted by Sally Hewitt and Kristal Olson of the Commission's Public Finance Abuse Unit, found that Loop Capital Markets “did not maintain a system reasonably designed to supervise its municipal securities activities."

Additionally, the watchdog found that the broker-dealer “had inadequate procedures, including insufficient methods to identify potential violations of the municipal advisor registration rules.”

LeeAnn Ghazil Gaunt, the Chief of the Enforcement Division’s Public Finance Abuse Unit, explained that the municipal advisor registration rules were designed to protect municipal entities from abuse.

Moreover, Gaunt noted that the rules apply to all participants in the country’s financial markets.

“Registered broker-dealers must either register as municipal advisors or refrain from engaging in municipal advisory activities,” he added.

Recent Charges

Last month, the SEC charged 18 persons and entities for their involvement in a fraudulent scheme that involved hacking dozens of online retail brokerage accounts.

The SEC said the hack happened between late 2017 and early 2018 and was coordinated by a man based in Canada, Rahim Mohamed.

On top of that, the regulator noted that several other individuals within and outside the US participated in or benefited from the scheme.

Earlier in August, the watchdog charged 11 individuals before the United States District Court in the Northern District of Illinois for alleged fraud.

Four of these 11 individuals were the Co-Founders of Forsage, a project the SEC described as a “fraudulent crypto pyramid and ponzi scheme.”

The US financial markets supervisor found that the individuals raised over $300 million from retail investors from around the world through the scheme.