Keybanc Capital Markets has been added to the growing list of underwriters, which so far has included BNY Mellon, Jefferies, Oppenheimer and TD Securities, among others, charged by the Securities and Exchange Commission for violating its limited offering exemption.
The Commission just began enforcing the failure of firms to acquire adequate disclosures from those purchasing limited offerings towards the end of last year, and in its initial settlement with those four firms, signaled there were likely more to come.
The firm violated Exchange Act Rule 15c2-12 and Municipal Securities Rulemaking Board Rule G-27 on supervision and without admitting or denying the findings, has agreed to a censure and various fines including a disgorgement of $263,607.66, prejudgment interest of $33,528.55 and a $100,000 civil penalty.
The events in question ran from September 2017 to December 2021, where Keybanc served as sole underwriter for at least 47 offerings that sought to rely on the limited offering exemption.
Under rule 15c2-12, underwriters are generally required to obtain disclosure documents from issuers, but the rule provides an exemption for limited offerings for municipal securities sold in denominations of $100,000 or more and sold to no more than 35 persons, if the purchaser can prove they are capable of evaluating the merits of the investment.
“KBCM did not provide investors in these securities with copies of any Preliminary Official Statement or Final Official Statement for the securities, or determine that a continuing disclosure undertaking has been entered into by the issuer, or an obligated person, as required by Exchange Act Rule 15c2-12(b),” the SEC said.
The 47 limited offerings were sold to broker dealers/investment advisors with separately managed accounts and when they were sold, “KBCM did not have a reasonable belief that the broker-dealers and investment advisers were purchasing the securities for investment as required under Exchange Act Rule 15c2-12(d)(1)(i),” the SEC said. “KBCM did not inquire, or otherwise determine, if the broker-dealers and investment advisers were purchasing the securities for more than one account or for distribution.”
The firm also failed to determine for whom the securities were being purchased and therefore did not fulfill the requirement that the investors purchasing the securities possessed the necessary knowledge and experience to evaluate the investments.
For their failure to adopt, maintain and enforce written supervisory procedures designed to stay in compliance with the Exchange Act and MSRB rules, they also violated MSRB Rule G-27 on supervision, and $16,667 of the $100,000 civil penalty will be given to the MSRB.
“KeyBanc Capital Markets worked with the SEC to bring this matter to conclusion by enhancing the relevant disclosure policies and procedures,” the firm said in a statement. “Key agreed to pay the fines and penalties, but in doing so neither admits nor denies the allegations.”