WASHINGTON - The Securities and Exchange Commission yesterday fined Jersey City, N.J.-based Wolfe & Hurst Bond Brokers and a former broker $25,000 each and barred the broker from the securities industry for at least one year for manipulating bids-wanted auctions for municipal bonds.
The case is the third the SEC has brought against brokers' brokers, which match dealers' buy and sell orders for municipal bonds in return for commissions from the selling brokers. The commission filed similar charges against two other firms - Regional Brokers Inc. and D.M. Keck & Co., which had been doing business as Discount Munibrokers - in September 2007.
Tami Stark, an assistant director in the SEC's Philadelphia regional office, said the case "demonstrates that we're going to continue to bring enforcement actions that relate to the municipal bond market."
In an order instituting administrative cease and desist proceedings, the SEC charged the firm willfully violated securities fraud laws and the Municipal Securities Rulemaking Board's Rule G-17 on fair dealing. It charged Peter J. Debany, 52, who formerly worked for the firm from May 25, 1985, through Sept. 28, 2007, in its Jupiter, Fla., office, with willfully aiding and abetting as well as causing the firm's violations.
Brokers' brokers sell bonds through offerings, when the selling broker tells the firm the price at which it wants to sell bonds, and through bids-wanted auctions, when the selling broker wants to sell bonds at auction for the best price available.
The SEC charged that from January 2002 through December 2003, Wolfe & Hurst, through Debany, while conducting bids-wanted auctions, knowingly engaged in materially manipulative conduct, which had the effect of reducing the spread between the winning bids and second-highest or cover bids, in some cases affecting the prices paid for the bonds.
The firm artificially narrowed the spreads by lowering the bids of the highest bidders and by entering new bids in amounts between the winning bids and existing cover bids and telling the sellers they were from other dealers.