Regulators sanction five big bond underwriters
SACRAMENTO -- Financial regulators ordered five of the nation’s biggest bond underwriters to pay $4.5 million in penalties and restitution for unfairly billing government agencies for fees the underwriters paid an industry group to lobby the state Legislature and government officials.
On Thursday, the Financial Industry Regulatory Authority (FINRA) in Washington said it had signed consent agreements with Citigroup, Goldman Sachs, JP Morgan, Merrill Lynch and Morgan Stanley.
The companies neither admitted nor denied the charges but agreed to pay $3.35 million in fines to the authority and $1.13 million in restitution to certain bond issuers in California.
The fees to the California Public Securities Assn. were not spelled out and violated federal regulations, according to the settlement agreements.
“Issuers are entitled to know what they are paying for and why,” said Brad Bennett, FINRA executive vice president and chief of enforcement. “It was unfair for these underwriters to pass along the costs of their Cal PSA membership to municipal and state bond taxpayers, neglecting to disclose that these costs were unrelated to the bond deals.”
The investigation by the independent regulator for securities firms and brokers overseen by the Securities and Exchange Commission found that the firms made payments to their California lobbying group between January 2006 and December 2010.
Then the firms turned around and asked the state and other municipal bond issuers to reimburse them for the voluntary lobbying payments, masked as expenses for helping the governments sell their bonds, FINRA said.
A spokesman for the California Public Securities Assn. did not immediately respond to a request for comment on Thursday’s action.
The billing of state and local governments for lobbying fees has been criticized by California state Treasurer Bill Lockyer for at least the last two years.
In February 2011, he announced that he would no longer approve such reimbursements and would seek to recover payments made over the previous five years. A month later, the treasurer had succeeded in getting $2.3 million in restitution to the state from various bond underwriters.
“We are pleased other California issuers are getting compensated,” said Lockyer spokesman Bill Ainsworth. “Today’s action sends the message that it is wrong for taxpayers to pay for the lobbying and political activities of underwriters.”
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