The Securities and Exchange Commission has charged Alliance Global Partners for engaging in unfair practices and publishing daily quotes at above market prices on anywhere between 4,300 and 6,500 different municipal bonds between February 2019 and February 2021.
The firm violated Municipal Securities Rulemaking Board Rules G-13 on quotes, G-14 on reports of sales or purchases, G-17 on fair dealing, G-27 on supervision and G-30 on prices and commissions, in addition to section 15B(c)(1) of the Exchange Act, the SEC found. Without admitting or denying the findings, the firm agreed to settle the charges in the SEC's administrative law court. The firm accepted a cease and desist order and agreed to pay disgorgement of $11,369, prejudgment interest of $2,407.38, and a $100,000 civil penalty.
The quotes were executed for a specific customer that was a Sophisticated Municipal Market Professional and without independently evaluating the fair market values of the bonds at the time they were quoted.
"Alliance published the quotes relying on the Customer's status as a SMMP and deferring to the customer's evaluation of the fair market value of the bonds," the SEC said. "This was improper because Alliance knew that the adjustments produced quotes for the bonds at above-market prices and that the customer was using the quotes to generate sales of the bonds at prices that were higher than the evaluated prices disseminated by the industry-recognized pricing service that the customer used to measure its performance."
Alliance also executed sales attributable to the quotes in a principal capacity on 204 occasions, without evaluating the prevailing market prices on the bonds.
"As a result, on 193 occasions, Alliance purchased the bonds from its customer at above market prices and sold the bonds at higher prices to dealers that, in turn, sold the bonds to investors, or to other dealers that sold the bonds to investors, at even higher prices," the SEC said. "In at least 51 instances, Alliance paid its customers above-market prices that were unfair and unreasonable and failed to identify these trades as 'away from the market' when it reported them to the Municipal Securities Rulemaking Board's Real Time Transaction Reporting System for display on the MSRB's Electronic Municipal Market Access platform."
The SEC said that the pricing failures created a risk to the market as other market participants relied on the inflated prices to price or value the same or similar bonds.
"The customer for whom Alliance disseminated the above-market quotes benefited from the above-market, and in some cases unfair and unreasonable, prices it received from the sale of the bonds," the SEC said. "However, the dealers that acquired the bonds directly or through inter-dealer transactions from Alliance passed the inflated prices that they paid for the bonds on to their customers."
The prices that downstream investors paid exceeded $1.00 or more on 157 occasions, exceeded $2.00 or more on 105 occasions and exceeded $3.00 or more on 47 occasions.
The investigation was supervised by Kevin B. Currid and conducted by Sue Curtin and Jon Wilcox of the Public Finance Abuse Unit, with assistance from the staff of the MSRB.
