The Securities and Exchange Commission (SEC) recently announced that UBS Financial Services Inc. has agreed to pay more than $10 million to resolve charges regarding certain municipal bond offerings.
UBS has agreed to pay the fine after the SEC charged the financial company with circumventing the priority given to retail investors in the bond offerings during a four year period. The Swiss-headquartered bank has paid the fine without admitting or denying the findings.
According to the SEC’s order, UBS improperly allocated bonds intended for retail customers to parties known in the industry as “flippers.” These parties then immediately resolved or “flipped” the bonds to other broker-dealers as profit.
“The order finds that UBS registered representatives knew or should have known that flippers were not eligible for retail priority,” the SEC said in its statement. “In addition, the order finds that UBS registered representatives facilitated over 2,000 trades with flippers, which allowed UBS to obtain bonds for its own inventory, thereby circumventing the priority of orders set by the issuers and improperly obtaining a higher priority in the bond allocation process.”
This is not the first time the SEC has brought charges against municipal bond offering “flipping” and retail order period abuses. In fact, the regulator brought forward similar charges in August 2018, December 2018, September 2019, and in April 2020 against a variety of firms and individuals.
Commenting on the charges, LeeAnn G. Gaunt, Chief of the Division of Enforcement’s Public Finance Abuse Unit, said in the statement: “Retail order periods are intended to prioritize retail investors’ access to municipal bonds and we will continue to pursue violations that undermine this priority.”
UBS consents to a cease and desist
In addition to paying the fine, UBS has also consented to a cease-and-desist order that finds it violated the disclosure, fair dealing, and supervisory provisions of Municipal Securities Rulemaking Board Rules G-11(k), G-17, and G-27. It has done so without admitting or denying the findings.
The order from the US authority has placed a $1.75 million penalty against UBS, $6.74 million in disgorgement of ill-gotten gains plus more than $1.5 million in prejudgment interest, and a censure.
