Securities Regulation Daily SEC brings first muni adviser action under Dodd-Frank antifraud provision
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Monday, June 13, 2016

SEC brings first muni adviser action under Dodd-Frank antifraud provision

By Jay Fishman, J.D.

A California consulting firm for municipal advisors and a California municipal advisor entered into separate settlement agreements with the SEC to settle charges of illegally using confidential information to win a California school district contract (In the Matter of School Business Consulting Inc., June 13, 2016; In the Matter of Keygent LLC, June 13, 2016).

Consulting firm’s violation. The consultant, which provided general consulting services to the school districts, violated the Exchange Act by obtaining confidential information about the school districts’ hiring practices (including the districts’ exact interview questions) and passed that information on to the municipal adviser which used the information to obtain a municipal advisor position over the other job applicants. The consultant did not have authority to share the information with the municipal adviser and the school districts were unaware that the information had been relayed to the municipal adviser.

The consultant additionally violated the Exchange Act by not being registered as a municipal advisor. The consultant was ordered to cease and desist from violating the Exchange Act, censured, and required to pay a $30,000 civil monetary penalty. The consultant’s president and sole shareholder was barred from associating with any broker, dealer, investment adviser, transfer agent or nationally recognized statistical rating organization and ordered to pay a $20,000 civil monetary penalty.

Muncipal advisor’s violation. The municipal adviser violated the Exchange Act by using the illegally confided information to win the contract. The municipal adviser was ordered to cease and desist from violating the Exchange Act, censured and required to pay a $100,000 civil monetary penalty. One of its managing directors was also censured and required to pay a $30,000 civil monetary penalty while the other managing director was required to pay a $20,000 civil monetary penalty.

Andrew Ceresney, the SEC’s Enforcement Division Director, said that the “unauthorized exchange of confidential client information could have given Keygent an improper advantage over other municipal advisors that were candidates for the same business. The Dodd-Frank Act prohibits this type of deceptive behavior by advisors when dealing with municipal issuers.”

LeeAnn Ghazil Gaunt, the SEC Enforcement Division’s Public Finance Abuse Unit Director, said that “these laws apply not only to municipal advisors but also [to] those who solicit business on behalf of municipal advisors. Municipal entities should be able to trust that their selection of a municipal advisor is untainted by any breach of fiduciary duty.”

The releases are Nos. 34-78053 and 34-78054.

Companies: School Business Consulting, Inc.; Keygent LLC

MainStory: TopStory DoddFrankAct FraudManipulation InvestmentAdvisers MunicipalSecuritiesNews CaliforniaNews

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