Published December 27, 2012
Wall Street's watchdog has fined five large firms over $4.48 million for seeking reimbursement for payments to lobbyists using proceeds from municipal and state bond offerings.
The Financial Industry Regulatory Authority said on Thursday that it fined Citigroup Inc, Goldman Sachs Group Inc, JPMorgan Chase & Co, Bank of America Corp's Merrill Lynch and Morgan Stanley.
Wall Street's self-imposed watchdog said the banks unfairly sought reimbursement of fees they paid to the California Public Securities Association between January 2006 and December 2010 by requesting they be refunded as underwriting expenses from the bond sales.
FINRA said the firms "violated" fair dealing and supervisory rules of the Municipal Securities Rulemaking Board by seeking reimbursement for those payments to Cal PSA, a political association whose activities include lobbying on behalf of companies seeking to influence California state government.
"It was unfair for these underwriters to pass along the costs of their Cal PSA membership to the municipal and state bond taxpayers, neglecting to disclose that these costs were unrelated to the bond deals," FINRA's chief of enforcement, Brad Bennett, said in a statement.
The firms, which were fined more than $3.35 million and are required to pay $1.13 million in restitution to certain issuers in California, neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
"We are pleased to resolve this matter and look forward to putting this behind us," Citi spokesman Scott Helfman said.
Morgan Stanley spokesman Mark Lake also said the firm is "pleased to have resolved this issue in a satisfactory manner for the firm."
Goldman Sachs said the company voluntarily refunded publicly disclosed Cal PSA fees in February 2011 for those charged as underwriting expenses on state-level issuances it lead underwrote, at the request of California's treasurer's office.
"At that time, we also discontinued the longstanding industry-wide practice of seeking reimbursement for such fees on offerings by state and local governments in California," said Goldman spokeswoman Tiffany Galvin. "We're pleased to have resolved this matter."
Merrill did not immediately comment on the sanction. JPMorgan declined to comment.
(Reporting By Ashley Lau and Lauren Tara LaCapra in New York; editing by Andrew Hay)