The Securities and Exchange Commission charged two firms and 18 individuals in a scheme to inappropriately divert new issue municipal bonds to broker-dealers at the expense of retail investors.
Per the SEC complaint, the defendants are well-known in the industry as “flippers.” First, the perpetrators allegedly purchased new issue municipal bonds by posing as retail investors. In doing so, they were first in line for bond allotments. After obtaining the bonds, the defendants then allegedly “flipped” (sold) the bonds to broker-dealers for a handsome fee. In a parallel action, the SEC also charged a municipal bond underwriter for accepting kickbacks from one of the flippers.
“More than a dozen of the individuals charged today are alleged to have engaged in plainly deceptive conduct,” said Stephanie Avakian, co-director of the SEC enforcement division. “We are committed to investigating and charging individuals, especially where, as here, the alleged misconduct by many of these industry professionals harmed retail investors.”
The Alleged Scheme
According to the SEC, the activities occurred from at least 2009 to 2016. During this time, Core Performance Management LLC, RMR Asset Management Co., its principals and designated associates misrepresented their identities to gain priority in new issue municipal bond allocations.
