WASHINGTON — Southwest Securities Inc. has agreed to pay $470,147 to settle charges with the Securities and Exchange Commission that it co-underwrote Massachusetts bond deals within two years after its former senior vice president made political contributions to state Treasurer Timothy Cahill.
The SEC also brought an administrative proceeding against former Southwest Securities official John Kendrick. In addition to personally contributing $1,625 to Cahill between 2003 and 2008, Kendrick co-hosted a June 2005 fundraiser for Cahill in which he made 82 solicitation requests for campaign contributions that netted $9,000 in contributions, the SEC said. Kendrick worked in the firm’s Medfield, Mass., branch office between Dec. 1, 2000, and July 2009.
The SEC said the conduct of Southwest and Kendrick violated the Municipal Securities Rulemaking Board’s Rule G-37 on political contributions, which bans firms for two years from negotiated business if they, their municipal finance professionals, or political action committees make significant contributions to elected issuer officials or candidates.
Kendrick’s contributions were made in seven different checks during two election cycles. Ahead of a 2006 primary, he contributed $250 on three occasions, for a total of $750, which was well above the MSRB’s $250 de minimis level of contributions that muni finance professionals can make to candidates for whom they are eligible to vote.
During the second cycle prior to the 2010 primary, Kendrick contributed a total of $875 through four separate checks, with the latter three in excess of the $250 de minimis exception, the SEC said.
A Southwest Securities spokesman declined to comment.
“We will continue to hold firms and individuals accountable when they violate the municipal securities’ pay-to-play rules,” said David Bergers, director of the SEC’s Boston regional office.
The $470,147 the firm is to pay the federal government includes a $50,000 civil penalty, disgorgement of $348,154 of ill-gotten fees obtained from co-managing 19 negotiated underwritings totaling $14 billion, and $71,993 in prejudgment interest.
The settlement and administration proceeding against Kendrick come less than a week after the SEC issued an unusual report showing that JPMorgan did not comply with s G-37 after its former vice chairman made contributions to, and solicited them for, Phil Angelides, who was California treasurer at the time.
The SEC did not charge the bank with any violation of the rule or recommend any enforcement action. It said the report was meant to clarify to market participants that bank-holding company executives affiliated with municipal dealers are not exempt from G-37’s pay-to-play restrictions if they have oversight of muni dealer operations.
