Risk & Compliance

JPMorgan May Be Charged over Muni Bonds

It says the SEC is considering a civil complaint related to bidding that involves the bank's securities division.
Stephen TaubMay 14, 2008

JPMorgan Chase & Co. said the Securities and Exchange Commission may bring civil charges against the bank related to the bidding of financial instruments tied to municipal bonds.

The banking giant said in a regulatory filing that the Philadelphia regional office of the SEC sent the bank a Wells notice informing it that it is “considering recommending that the commission bring an enforcement action” against JPMorgan’s securities division, according to published reports.

The SEC alleged that the bank’s unit violated federal securities laws “in connection with the bidding of various financial instruments associated with municipal securities.”

The Associated Press noted that regulators have been investigating the possibility of bid-rigging in the municipal bond markets, and that they have contacted a number of financial services companies about their municipal securities activities. The wire service said there was no indication whether the SEC’s notice related to bidding practices at Bear Stearns Cos., which JPMorgan is acquiring.

The wire service said that in April Bear reported that the SEC was considering a civil injunctive action or an administrative hearing regarding the company’s bidding process with municipal securities. Back in December, JPMorgan Securities said it would pay $500,000 for failing to disclose to the Municipal Securities Rulemaking Board (MSRB) that JPMorgan Securities had used consultants to obtain numerous municipal securities offerings, and had made payments to consultants connected to particular offerings, according to the Financial Industry Regulatory Authority (FINRA), which regulates securities firms.

It accused JPMorgan Securities of inaccurately stating in its filings with the MSRB that no municipal securities business had been obtained by its consultants and that it had made no payments to consultants connected with particular transactions. In fact, FINRA found, during the period from January 2002 through June 2004, J.P. Morgan used 16 different consultants to obtain at least 70 separate underwritings and paid at least $750,000 to six consultants connected to particular transactions, according to the announcement at the time.

“The action announced today demonstrates FINRA’s commitment to enforcing rules that are important to the integrity of the municipal securities market,” said Susan L. Merrill, FINRA executive vice president and chief of enforcement. “The failure to report payments to consultants for specific municipal business undermined the disclosure scheme in place at the time the reports were made. MSRB rules no longer allow such payments at all.”