WASHINGTON — Three more individuals have agreed to be barred from the securities industry for their alleged involvement in a municipal bond flipping and kickback scheme, the latest development in an ongoing Securities and Exchange Commission investigation that has produced several settlements and a federal lawsuit.
The SEC announced settlements on Aug. 31 with Bruce Broekhuizen, John Kirschenbaum, and Neil Kelly.
All three were alleged to have participated as "independent contractors" of the now-defunct unregistered San Diego-based broker-dealer RMR Asset Management Co., in a scheme to pose as retail investors in order to gain priority access to new-issue munis that were then “flipped” for profit to the customers of other broker-dealers. All three agreed to settle with the SEC without either admitting or denying the Commission’s findings.
These settlements were reached through administrative proceedings separate from the penalties the men already agreed to pay last month as defendants in the SEC’s civil lawsuit against RMR and several other individuals. Broekhuizen agreed in court to pay $79,506, while Kelly agreed to pay $80,452 and Kirschenbaum $186,648.
RMR associates Richard Gounaud, Jocelyn Murphy, and Michael Murphy continue to face litigation.
The court also permanently enjoined the defendants from future violations of the federal securities laws, as well as the Municipal Securities Rulemaking Board’s Rule G-17 on fair dealing.
According to the terms of the administrative orders settling with Broekhuizen, Kirschenbaum, and Kelly, all three will be barred from associating with any broker-dealer, muni advisor, investment adviser, rating agency, or transfer agent for at least two years. They will then have the opportunity to apply for reinstatement, subject to meeting certain terms such as having paid the disgorgement they were ordered by the court to pay. The men were not registered brokers at the time of the alleged scheme, which was part of their alleged wrongdoing.
RMR was alleged to be one player in a larger case announced on Aug. 14, in which RMR, Core Performance Management LLC, and their principals used fictitious business names to purchase bonds during retail purchase periods and prevent legitimate retail customers from receiving priority as was intended by the issuers. The conduct took place from 2009-2016, according to the SEC.
After acquiring the bonds, the SEC alleged, the defendants quickly resold them to broker-dealers, typically for a fixed, pre-arranged commission, and often sought to hide the flipping activity from issuers and underwriters by manipulating sales tickets.
The case also ensnared Charles Kerry Morris, the former head of municipal underwriting at broker-dealer NW Capital Markets Inc., who was alleged to have taken “kickback” money from CPM Managing Director James Scherr and engaged in a parking scheme in which Morris allocated new issue bonds to Scherr with the understanding that Morris would repurchase them.
The case could be especially significant because there are indications that the SEC may be making a further push to crack down on this behavior, sources said. The Commission has said its investigation is continuing.
The ongoing lawsuit against the other defendants is Securities and Exchange Commission v. RMR Asset Management Company et al, in the U.S. District Court for the Southern District of California.
