SEC fines unregistered muni advisor $30,000

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An enforcement case announced Friday highlighted the often murky line between the various consultants working legally with municipal issuers and those who may be performing unlicensed muni advisory work.

Funding the Gap LLC and its principal, Irene Carroll, agreed to settle with the SEC on charges that the company and Carroll provided municipal bond advice without registering as municipal advisors as required under federal law.

FTG and Carroll did not admit or deny the SEC’s findings and agreed to cease-and-desist orders and to pay $30,000 to the SEC. The SEC found they violated registration provisions under Section 15B(a)(1)(B) of the Securities Exchange Act of 1934 and that Carroll caused the violation.

The SEC’s regulation of municipal advisors plays an important role in protecting investors, said LeeAnn Ghazil Gaunt, the SEC’s chief of the Enforcement Division’s Public Finance Abuse Unit.

“The SEC’s regulation of municipal advisors serves an important role in protecting investors and municipal issuers, including charter schools and school districts,” said LeeAnn Ghazil Gaunt, the SEC’s chief of the Enforcement Division’s Public Finance Abuse Unit. “Firms that provide municipal advice must comply with their regulatory obligations, which include the foundational requirement that they register with both the SEC and the Municipal Securities Rulemaking Board.”

Funding the Gap is an Arizona limited liability company created in 2011 in Scottsdale, Arizona. Carroll is one of the two initial members of FTG and has controlled the firm since about 2017, the SEC said.

Carroll wholly owns and is associated with a firm, FTG Advisors, that is registered with the SEC as of about one year ago.

Starting in July 2014 through September 2019, Funding the Gap and Carroll provided municipal advice to 12 charter schools in connection with the issuance of municipal bonds, the SEC said. They provided advice on 12 municipal bond offerings sold through conduit issuers that raised about $222 million.

That advice involved financing structures and interest rates, debt service analysis and amortization schedules, selection of the conduit municipal issuer and selecting an underwriter, the SEC found.

“The services FTG and Carroll provided to their charter school clients in connection with their bond offerings included some services which are routinely provided by a registered municipal advisor to municipal entities and obligated persons,” the SEC said.

In September 2018 in connection with an $11.9 million municipal bond offering, FTG and Carroll advised their charter school client on the interest rate of the bonds including the reasonableness of the expected rate in light of market conditions, the SEC said.

FTG describes itself as a capital advisory and real estate services firm for charter schools and other education-related entities. Its clients are primarily charter schools throughout the U.S., including Florida, Colorado, Texas and South Carolina, the SEC said.

When contacted in March 2019 by The Bond Buyer, Carroll denied engaging in municipal advisory activity. She said at that time she was not doing MA work, but instead was consulting and that she was not looking for municipal transaction work.

“We’re involved quite early,” Carroll said in 2019. “We help the school structure a transaction, not always a bond transaction.”

The SEC said Carroll was aware of the MA registration requirements as early as 2011 and that she understood she and FTG were providing similar services to those typically provided by registered MA’s, the SEC said.

FTG and Carroll did not immediately respond to a request for comment.

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