Markets Wired

The Securities and Exchange Commission today charged a municipal advisor and its principal with breaching its fiduciary duty in connection with a $6 million municipal bond offering by the Harvey Public Library District in Harvey, Illinois.

The SEC’s complaint, filed in the U.S. District Court for the Northern District of Illinois, alleges that Mississippi-based municipal advisor Comer Capital Group, LLC and its managing partner, Brandon L. Comer, failed to protect the interests of their client, the Library District. According to the complaint, the Library District hired Comer Capital and Comer to assist with the bond offering process, including to provide advice on: (1) the selection of an experienced underwriter, and (2) the pricing of the bonds. The SEC alleges that Comer Capital and Comer did not provide advice to the Library District on the qualifications of the underwriter and, upon learning that the underwriter was having difficulty finding investors to buy the bonds, did not consider or recommend that the District consider engaging a different or an additional broker-dealer to underwrite the bonds. The SEC also alleges that Comer Capital and Comer did not provide the Library District with the information and advice needed to determine whether the price of the bonds was fair and reasonable. According to the SEC’s complaint, the price was not fair and reasonable and the mispricing of the bonds will cause the Library District to pay more than $500,000 in additional interest over the life of the bonds. The complaint charges the defendants with breaching their fiduciary duties in violation of Section 15B(c)(1) of the Securities Exchange Act of 1934. The SEC is seeking permanent injunctions, disgorgement plus prejudgment interest, and civil penalties.

In a related action, the SEC also instituted a settled administrative proceeding against IFS Securities, an Atlanta-based broker-dealer that underwrote the Library District’s bonds. The order finds that IFS did not act with reasonable care in underwriting the bonds and, when it had difficulty finding investors for the bonds, sold all of bonds to another broker-dealer at a price which was not fair and reasonable to the District. The order finds that IFS violated Municipal Securities Rulemaking Board Rule G-17 and Section 15B(c)(1). Without admitting or denying the findings, IFS agreed to a censure, an order to engage an independent compliance consultant, and to pay a $50,000 civil penalty.

The SEC’s investigation was conducted by Natalie Garner of the Public Finance Abuse Unit and the Chicago Regional Office with assistance from Joseph O. Chimienti, Jonathan Wilcox, and Deputy Chief Mark R. Zehner, and was supervised by Brian D. Fagel. The SEC’s litigation against Comer Capital and Comer will be led by Michael Foster of the Chicago Regional Office.