Why SEC barred firm, individuals from muni market

WASHINGTON – The Securities and Exchange Commission has settled fraud and other charges against the now-defunct Core Performance Management, LLC, and four of its former employees for engaging in a municipal bond flipping and kickback scheme.

The SEC alleged that from at least 2009 to 2016, CPM, an unregistered broker-dealer based in Florida, and its employees bought newly issued municipal bonds in primary offerings from underwriters and then sold or “flipped” the bonds for a profit to the customers of other broker-dealers that were unable to obtain them directly.

In many cases, CPM’s employees obtained the bonds by falsely representing themselves to underwriters and the issuer as retail investors or their representatives, which had a higher priority in purchasing the bonds.

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The SEC alleged CPM and its employees committed fraud and violated the Municipal Securities Rulemaking Board’s Rule G-17 on fair dealing.
CPM was dissolved in July 2016.

In separate settlements, CMP, James Scherr, 61, its majority owner and managing director, and former employees Deborah Dora, 58, Sharlene Mesite, 57, and Andrew Pinzon, 43, neither admitted nor denied the SEC’s charges. Dora and Mesite reside in Florida while Pinzon is in Los Angeles, Calif.

But the defendants all agreed to be barred from the securities industry and to be enjoined from violating any future of the securities laws and Rule G-17.

Dora, Mesite, and Pinzon were given the right to reapply for reentry into the market in two years.

But the SEC said that the three, as well as Scherr and CPM, would have to meet certain conditions if they reapplied to reenter the market.

They would have to comply with any order to disgorge ill-gotten gains regardless of whether the payment was waived by the commission, and pay any arbitration award related to the misconduct that was the basis for the SEC order.

They also would have to pay any self-regulatory organization arbitration award or restitution order, regardless of whether they were related to the misconduct that was the basis for the SEC order.

The SEC has also settled with RMR Asset Management Co., an unregistered San Diego-based broker-dealer that also participated in the scheme but was shut down earlier this year.

The SEC plans to litigate charges against RMR associates Richard C. Gounaud, Jocelyn M. Murphy, and Michael S. Murphy in U.S. District Court for the Southern District of California.

In a related action, the SEC instituted settled proceedings against Charles Kerry Morris, the former head of municipal underwriting, sales and trading at broker-dealer NW Capital Markets Inc. The firm is based in Hoboken, N.J., and is registered at the SEC as a broker-dealer.

The SEC found that Morris took kickbacks from Scherr and engaged in a parking scheme under which Morris allocated new-issue bonds to Scherr with the understanding that Morris would repurchase them. As a result of this trading, the SEC found that Morris and NW Capital caused Scherr and CPM’s improper unregistered broker activity.

The SEC also found that Morris’s supervisor, James A. Fagan, failed reasonably to supervise Morris’s activities.

Morris, NW Capital, and Fagan agreed to settle the charges without admitting or denying the SEC’s findings. Morris agreed to pay a total of $254,009 and to consent to an industry bar. NW Capital agreed to be censured and pay a total of $87,065 and Fagan agreed to pay a $10,000 penalty and to consent to a six-month supervisory suspension.

Loren Washburn, with Smith Washburn LLP, which represents RMR and several other defendants, said on Aug. 14: "They cooperated with the SEC throughout the investigation. They are looking forward to getting this behind them and moving on with their personal and professional lives."

Washburn also represents: Pinzon, Bruce Broekhuizen, Douglas Derryberry, David Frost, Neil Kelly, John Kirschenbaum, David Luttbeg, Timothy McAloon, Ralph Riccardi, Dewey Tran, and Philip Weiner.

James Sallah, with Sallah, Astarita & Cox, which represents CMP, Dora and Mesite, Scherr, and James O’Neil could not be reached for comment.

The SEC said its investigation is continuing.

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Primary bond market Enforcement SEC enforcement Enforcement actions MSRB rules Fraud liability SEC MSRB Washington DC Florida California
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