SEC charges broker-dealer in another first-of-its-kind case

The Securities and Exchange Commission has charged Chicago-based broker-dealer Loop Capital with providing advice to a municipal entity without registering as a municipal advisor, the first time the Commission has charged a broker-dealer for violating the municipal advisor registration rule.

The charges come a day after the SEC charged four underwriters in a first-of its-kind disclosure case in connection with limited offering exemptions and follows the increased enforcement stance the SEC and its Public Finance Abuse Unit have adopted this year. Without admitting or denying the findings, Loop agreed to be censured, and to pay disgorgement of $5,456.73 and a civil penalty of $100,000.

"The municipal advisor registration rules apply to all market participants and are intended to protect municipal entities from abuse," said LeeAnn Ghazil Gaunt, chief of the Enforcement Division's Public Finance Abuse Unit. "Registered broker-dealers must either register as municipal advisors or refrain from engaging in municipal advisory activities."

Scott Weaver

From September 2017 to February 2019, the SEC found, Loop provided advice to a midwestern city concerning securities that were purchased with municipal bond proceeds. According to the order, Loop identified fixed income products for the unnamed city and urged the city to purchase them.

Loop Capital was not registered as a municipal advisor during the time it provided the advice and "did not maintain a system to supervise the municipal securities activities of its associated persons that was reasonably designed to achieve compliance with applicable securities laws, regulations and MSRB rules," the SEC order said.

According to its own written supervisory procedures, the firm was required to "conduct its public finance and municipal securities-related business in a manner so as to not subject the firm to registration and regulation as a municipal advisor," the SEC order said. 

But the firm also had inadequate internal procedures in place to enable its representatives to identify circumstances when a client would seek investment advice for municipal securities, inadequate training with respect to municipal advisor registration requirements and inadequate electronic communication surveillance procedures to identify potential violations, the SEC alleged.

Loop Capital is accused of violating Section 15(a)(1)(B) and 15B(c)(1) of the Exchange Act, as well as MSRB Rule G-27 on supervision.

In accepting the SEC's offer, Loop Capital has undertaken remedial efforts to improve written supervisory procedures, improvements to training and improvements to surveillance.