Municipal issuers normally require underwriters to provide local retail investor orders with the highest priority when allocating new issue bonds. Per the SEC’s complaint, the defendants used falsely linked ZIP codes, fictitious business names and divided orders among dozens of accounts.
After acquiring the bonds, the SEC alleged that the defendants quickly resold the debt securities to broker-dealers. The post bond sales were typically for a fixed, pre-arranged commission, wherein they hid the flipping activity from the issuers and underwriters. The perpetrators accomplished this by manipulating sales tickets.
“By improperly placing retail orders on behalf of broker-dealers, we allege the flippers prevented true retail investors from receiving priority in municipal bond offerings,” said LeeAnn G. Gaunt, chief of the division of enforcement’s public finance abuse unit. “We are continuing our investigation to determine whether other market professionals had a role in these improper practices.”
Legal Settlement with the SEC
While the settlements are subject to court approval, Core Performance and managing director James P. Scherr, RMR and its president, Ralph Riccardi, and 13 of their associates settled the SEC’s charges without admitting or denying the allegations.
