Citigroup Inc and Bank of America Corp's Merrill Lynch are among five firms that will pay US$4.48 million to settle regulatory claims they used funds from municipal and state bond deals to pay lobbyists.
Local authorities were unfairly asked to reimburse payments that the firms made over five years to the California Public Securities Association, a lobbying group, to help influence the state, the Financial Industry Regulatory Authority, which oversees securities firms, said yesterday in a statement. The firms inadequately described the fees, wrapping them into bond-underwriting expenses, Finra said.
Underwriters that fund bond-authorisation campaigns and then collect fees from approved debt sales are among unresolved pay-to-play issues in the US$3.7 trillion municipal market. Hiring an underwriter based on whether it supports a campaign rather than its ability to market bonds can lead to mispricing, which can hurt investors, as well as higher fees and borrowing costs.
Issuers reimbursed
The banks, also including Goldman Sachs Group Inc, JPMorgan Chase and Company and Morgan Stanley, agreed to pay US$3.35 million in fines and reimburse certain California bond issuers US$1.13 million, according to the statement. Citigroup's US$1.28 million in sanctions were the largest, followed by Merrill's US$1.07 million.
The five banks violated the Municipal Securities Rulemaking Board's fair-dealing and supervisory rules, according to the statement. The Alexandria, Virginia-based MSRB, a self-regulatory body that sets guidelines for the muni market, has banned would-be underwriters from giving to most campaigns for elected officials who could influence the award of bond sales.
The lobbying payments that resulted in yesterday's sanctions spanned 2006 through 2010, according to Finra. The companies didn't admit or deny wrongdoing. (Bloomberg)