UBS Financial Services Inc. agreed to pay more than $10 million to settle charges filed by the Securities and Exchange Commission (SEC) in connection with its municipal bond offering flipping scheme.
According to the SEC Order, UBS violated certain rules of the Municipal Securities Rulemaking Board (MSRB). The Swiss financial services firm also failed to comply with “retail order period restrictions in new issue municipal bond offerings it distributed by allocating bonds intended to retail customers to certain parties known in the industry as flippers.”
The Commission noted that UBS engaged in the bond-flipping scheme for four years, between August 2012 and June 2016. During the relevant period, the flippers immediately resold or flipped the bond to other broker-dealers at a profit after acquiring it from the Swiss financial services firm.
Additionally, the SEC stated that UBS improperly obtained negotiated new issue bonds for its inventory by placing an indication of interest with the flippers, who then placed customer orders with the underwriting syndicate. The practice allowed UBS to circumvent the priority of order and to improperly gain access to a higher priority in the bond allocation process.
