SEC settles with RBC unit over bond allocations

U.S. securities regulators settled with RBC Capital Markets LLC, and two of the firm’s executives, over allegations that they improperly allocated municipal bond offerings to so-called “flippers” ahead of retail and institutional clients.

Without admitting or denying the allegations, the firm settled with the U.S. Securities and Exchange Commission (SEC), agreeing to pay US$800,000 to resolve charges that it violated securities rules by engaging in unfair dealing.

The SEC’s order requires RBC to pay a US$150,000 penalty, plus US$552,440 in disgorgement and US$160,886 in prejudgement interest.

According to the regulator, “RBC improperly allocated bonds” that should have gone to institutional clients and other dealers to so-called “flippers,” or those who then resold the bonds to other broker-dealers at a profit.

The SEC also found that in three cases, when a bond issuer instructed RBC to place retail orders first, the firm instead allocated bonds to flippers ahead of the retail clients.

Additionally, the SEC said, “RBC improperly obtained bonds for its own inventory by placing orders with flippers,” which allowed the bank to jump the underwriters’ line.

In related actions, the SEC also settled with two RBC executives — Kenneth Friedrich, the bank’s former head of municipal sales, trading and syndication; and Jaime Durando, head of RBC’s municipal syndicate desk — alleging that they each permitted the firm’s violations.

Both men settled without admitting or denying the findings.

Friedrich agreed to a civil penalty of US$30,000, and Durando agreed to pay US$25,000. They were also censured, and Friedrich consented to a six-month ban on trading municipal new issues and a limit on his supervisory duties.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.