SEC Sanctions Firms for Improper Sales of Puerto Rico Bonds

On November 3, 2014, the Securities and Exchange Commission (SEC) sanctioned 13 firms. According to the SEC, these firms violated the rule that is primarily designed to protect retail investors in the municipal securities market. A "minimum denomination" sets the smallest amount of the bonds that a broker/dealer is permitted to sell to a retail investor in a single transaction. The retail investors tend to purchase securities in smaller amounts, so the "minimum denomination" sets a standard that helps ensure the dealer firms sell high-risk securities only to investors who can take the risk in larger investments and would be prepared to handle the greater risk.

"Junk bonds" have a much higher default risk, so municipal issuers often set higher minimum denomination amount. These “junk bonds” are inappropriate for some retail investors.

The SEC Enforcement Division’s Municipal Securities and Public Pensions Unit found improper sales below a $100,000 minimum denomination set in a $3.5 billion offering of junk bonds by the Commonwealth of Puerto Rico earlier this year.

The SEC found 66 occasions when dealers sold the Puerto Rico bonds to investors in amounts below $100,000. Some of those firms that had administrative proceedings instituted against them for improper sales were: Charles Schwab & Co., Hapoalim Securities USA, Investment Professionals Inc., J.P. Morgan Securities, Lebenthal & Co., National Securities Corporation, Oppenheimer & Co., Riedl First Securities Co. of Kansas, Stifel Nicolaus & Co., UBS Financial Services, and Wedbush Securities.
The firms have agreed to pay penalties and settle the SEC charges.

If you purchased Puerto Rico "junk bonds" through your broker/dealer, please call (888) 760-6552 for a free consultation on how to recover your investment losses. Soreide Law Group is currently representing investors nationally and internationally in Puerto Rico bond loss cases.