A Montana-based firm has agreed to pay $85,000 to settle charges that it violated multiple municipal securities rules after the Financial Industry Regulatory Authority found the firm provided inaccurate pricing in issue price certificates in 22 municipal offerings.
D.A. Davidson & Co. agreed this week to pay the fine and be censured while neither admitting nor denying FINRA’s findings that it violated Municipal Securities Rulemaking Board Rules G-17 on fair dealing and Rule G-27 on supervision. All of the fines pertain to the firm’s alleged MSRB violations.
FINRA found the firm’s violations during an examination focusing on offerings originally reviewed during a 2017 cycle examination of D.A. Davidson. D.A. Davidson and its lawyers did not respond to a request for comment.
From March through October 2016, the firm allegedly provided inaccurate information or misleading statements in its issue price certificates in connection with 22 municipal offerings out of a sample of 30 FINRA reviewed.
During that time, the firm acted as the sole underwriter for numerous municipal offerings, and as sole underwriter, prepared and provided issuers with issue price certificate with the offerings, FINRA said.
The issue price certificate is the document that the underwriter typically provides the issuer after the sale of bonds in a negotiated sale.
“Issue price certificates typically include representations that, among other things, at least 10% of each maturity of the bonds was first sold to the public at the initial offering prices set forth in the Official Statement for the offering,” FINRA said.
Issue price certificates for 17 offerings included representation that “at least 10% was sold to the public,” FINRA said. The other five certificates allegedly had inaccurate representation that “as of the sale date” the firm “reasonably expected that at least 10% would be sold to the public.”
“At the time the firm executed the issue price certificates for the 22 offerings, the offerings had been completed and, contrary to these representations, certain maturities of all 22 offerings had, in fact, been sold by D.A. Davidson entirely to other broker-dealers and not to the ‘public,’” FINRA said.
FINRA found the firm did not have a reasonable system in place to supervise the accuracy of the representations it made in issue price certificates.
“Specifically, the firm relied upon bankers and bond counsel to prepare and execute issue price certificates without any process or procedure for verifying the accuracy of the firm’s statements based on available information regarding whether at least 10% of each maturity had actually been sold to the public,” FINRA said.
While the firm’s written supervisory procedures generally did describe the firm’s obligations with its respect to representations to issues, the firm had no WSPs for reviewing the accuracy of issue price certificates, FINRA said.
D.A. Davidson has been a FINRA member firm since September 1952 and they provide underwriting services to municipal entities. The firm has been a registered municipal dealer since 1975 and a register municipal advisor since 2010.
The firm has about 1,000 registered representatives and 120 branch offices. They did not have any relevant disciplinary actions related to this settlement.