SEC Levies $90,000 Penalty

The Securities and Exchange Commission has censured and penalized StateTrust Investments, Inc. for a whopping $90,000. The actions come as the result of a settlement over charges that the firm broke the Municipal Securities Rulemaking Board’s rules when it sold Puerto Rico bonds for a sum less than the issuer’s specified minimum denomination.

Surprisingly, this is just one of a score of actions taken by the SEC in recent years, which has culminated in an unprecedented amount of cases.

Last March, StateTrust Investments, Inc. executed a transaction that was less than $100,000 with a customer. Though the firm canceled it, the SEC said that the StateTrust Investments, Inc.’s conduct was still in violation of the MSRB’s rule on fair dealing, and its rule on confirmation, clearance, and settlement practices, which prohibits sales under the officially stated minimum denomination (except in some, certain, limited circumstances).

In addition to the $90,000 penalty, the SEC also ordered StateTrust to cease and desist from violations in the futures, and to undergo a review of the firm’s policies and procedures meant to prevent future violations.

“The limited exceptions provided under MSRB Rule G-15(f) for customer transactions in municipal securities below the minimum denomination of an issue did not apply to this transaction,” stated the SEC. “StateTrust also failed to disclose to this customer, before or at the time of the trade, that the bonds were issued with a $100,000 minimum denomination, and to explain how this could affect the liquidity of the customer’s position.”

This case is but one of a number of recent SEC enforcement actions, which have nearly doubled in less than 10 years. In 2005, there were only 94 broker-deal enforcement actions, similar to StateTrust Investment Inc.’s case. Total, the SEC brought 630 cases. In 2014, there were a whopping 166 broker-dealer enforcement actions. That same year, the SEC’s enforcement division brought a staggering 755 cases, collecting a record $4.1 billion

Out of all of these cases, the $90,000 penalty put on StateTrust is one of the largest the SEC has levied in connection with the Puerto Rico bond sale.

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