The U.S. Securities and Exchange Commission has charged municipal bond traders for posing as retail investors to attain priority in new-issue municipal bond allocations over a period of at least seven years.
According to the allegations, Core Performance Management LLC and RMR Asset Management Co., their principals, and certain of their associates bought new issue municipal bonds, often by acting as retail investors to gain priority in bond allocations, and then "flipped" the bonds to broker/dealers for a fee.
The regulator also charged James Scherr, Core Performance's managing director, as well as Ralph Riccardi, president of RMR Asset Management, along with 13 of their associates. All of these individuals settled the SEC's charges without admitting or denying the allegations. They agreed to injunctions, and to return allegedly ill-gotten gains with interest and pay civil penalties, among other things. The settlements are subject to approval in court.
The SEC's charges against RMR associates Richard Gounaud, Jocelyn Murphy and Michael Murphy will be litigated in U.S. District Court for the Southern District of California.
In addition, the SEC charged Charles Kerry Morris, former head of municipal underwriting at broker/dealer NW Capital Markets Inc., for taking kickbacks from Scherr and engaging in a "parking" scheme in which Morris allocated new issue bonds to Scherr with the understanding that Morris would buy them back. As a result of this trading, the SEC found that Morris and NW Capital caused Scherr and Core Performance's improper unregistered broker activity. The SEC also found that James Fagan, Morris' supervisor, failed reasonably to supervise Morris' activities.
Morris, NW Capital and Fagan agreed to settle the charges without admitting or denying the SEC's findings. Morris agreed to pay a total of $254,009 and to consent to an industry bar. NW Capital agreed to be censured and pay a total of $87,065, while Fagan agreed to pay a $10,000 penalty and to consent to a six-month supervisory suspension.