First Fidelity to Pay $2.3 Million to Settle Bond Kickback Case

A New Jersey securities firm agreed to pay $2.3 million to settle Securities and Exchange Commission charges that it paid kickbacks to win underwriting business in municipal bonds, the SEC announced Tuesday.

The fine against First Fidelity Securities Group of Newark was the second-largest paid in an SEC municipal bond enforcement case to date, agency officials said.

The case marked the third time the SEC has brought charges of “pay-to-play” in the municipal bond market, they said, referring to influence-peddling practices that are drawing heavy scrutiny from regulators.

The SEC has brought about 10 enforcement actions in the municipal bond arena in recent months, in what SEC Chairman Arthur Levitt has called a campaign to clean up practices in the $1.3-trillion market.

Tuesday’s move was a continuation of an enforcement action launched by the SEC on Feb. 23. In that action, the agency charged four people, including two former executives of First Fidelity Bank, with securities fraud in connection with an alleged kickback scheme involving millions of dollars of bond underwriting business.

The SEC said George Tuttle, former investment banker at First Fidelity, and Alexander Williams, former executive vice president of the firm, made unlawful secret payments to secure New Jersey municipal bond underwriting business.

The action announced Tuesday, which provided details about Tuttle’s and William’s activities, was brought solely against First Fidelity.

The SEC’s complaint alleged that Tuttle paid kickbacks from 1987 to the early 1990s to a treasurer of Essex County, N.J. The former treasurer, Joseph Galluzzi, became a financial consultant after serving as treasurer from 1987-89.

The SEC alleged that Williams eventually learned of the scheme and helped Tuttle carry it out.

Tuttle and Williams, who neither admitted nor denied the SEC charges, agreed in February to pay back roughly $23,000 in allegedly illegal payments. Tuttle also agreed to cooperate with the SEC.

First Fidelity fired Williams and Tuttle in November 1994.