WASHINGTON -- Municipal Finance Services, Inc., an Edmund, Okla. -based advisory firm, and two of its officials have agreed to pay a total of $66,000 in penalties and take remedial actions to settle Securities and Exchange Commission charges that they violated their fiduciary duty to a local bond issuer.
The SEC announced the settlements in an order instituting administrative cease and desist proceedings on Thursday,
The officials are Rick A. Smith, 62, founder and president of the firm, and Jon G. Wolff, 55, vice president of the firm.
The city, which the SEC did not identify, hired firm in 2011 to be its municipal advisor. The firm was responsible for preparing bond offering documents and reviewing and commenting on all legal documents related to the city's bond issuances.
In May 2013, the city issued municipal bonds and executed a continuing disclosure agreement that tried to amend the continuing disclosure agreements for three previous bond issues sold in 2005, 2008 and 2012, according to the SEC.
The new CDA gave the city 360 days to file audited financial statements and other financial information instead of the 180 day period agreed to in the early CDAs. Then the advisory firm failed to submit the amendment to the earlier CDAs to the Municipal Securities Rulemaking Board’s EMMA system for three years.
“As a result of these failures,” the SEC said in its order instituting cease-and-desist procedures, “investors holding the 2005, 2008 and 2012 bonds, who had been promised the city’s annual reports within 180 days, were not informed of the new 360-day deadline until three years after the amendment purportedly took effect.”
The SEC said Municipal Finance Securities “willfully breached its fiduciary duty” under the securities laws. The Dodd-Frank Act required all municipal advisors to be subject to a fiduciary duty and put clients’ interests first above their own.
The commission said Section 15B(c)(1) of the Securities Exchange Act of 1934 “imposes upon municipal advisors and their associated persons a duty to their municipal entity clients, and prohibits them from engaging in any act, practice or course of business that is not consistent with that duty. Fiduciaries must act in the utmost good faith and use reasonable care to avoid misleading clients.”
The firm agreed to pay a $50,000 penalty and to establish written policies and procedures and periodic training regarding the fiduciary duties of MAs. Those policies and procedures shall require the designation of an individual or officer for ensuring compliance.
The SEC said Smith and Wolff “caused the firm’s violation of the Securities Exchange Act and each agreed to pay $8,000 penalties.