Bloomberg reports that local authorities were unfairly asked to reimburse payments that the firms made over five years to the California Public Securities Association, a lobbying group, to help influence the state, the Financial Industry Regulatory Authority, which oversees securities firms, said Thursday in a statement. The firms inadequately described the fees, wrapping them into bond-underwriting expenses, Finra said.
Underwriters that fund bond-authorization campaigns and then collect fees from approved debt sales are among unresolved pay-to-play issues in the $3.7 trillion municipal market. Hiring an underwriter based on whether it supports a campaign rather than its ability to market bonds can lead to mispricing, which can hurt investors, as well as higher fees and borrowing costs.
'The script remains the same', said Marilyn Cohen, founder of Envision Capital Management Inc. in Los Angeles, which oversees about $210m of munis. 'I’m not surprised - my surprise is they found it. That’s just the cost of doing business. It’s all pay-to-play'.
The banks, also including Goldman Sachs Group Inc. (GS),JPMorgan Chase & Co. (JPM) and Morgan Stanley, agreed to pay $3.35m in fines and reimburse certain California bond issuers $1.13m, according to the statement. Citigroup’s $1.28m in sanctions were the largest, followed by Merrill’s $1.07m.
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