Municipal Advisor Charged with Fiduciary Violation
Earlier this month, the SEC announced that it charged a registered municipal advisor and its owner with defrauding their client, a Texas school district, in connection with multiple municipal bond offerings. This enforcement action brings attention to the obligations and duties that municipal advisors have to their clients.
The SEC found that in connection with three municipal bond offerings between January 2013 and December 2014, the owner and his wholly-owned municipal advisor, Barcelona Strategies LLC, misrepresented their municipal advisory experience and failed to disclose conflicts of interests to their client, a local school district in South Texas.
Specifically, the SEC stated that, in an attempt to gain municipal advisory clients, the owner drafted and circulated a brochure to the school district and municipalities to market his firm’s municipal advisor experience. The SEC order states that the brochure created the misleading impression that the owner and his firm had served as a municipal advisor on numerous municipal bond issuances and failed to disclose that he had a financial interest in the school district’s offerings. As a result, the firm garnered hundreds and thousands of dollars in advisory fees.
By misrepresenting their municipal finance experience and failing to disclose the conflict of interest with bond counsel, the firm and advisor violated the federal securities laws and MSRB rules.
Without admitting or denying the allegations, the municipal owner consented to a cease-and-desist order and is liable for paying $362,606 in disgorgement and $19,514 in prejudgment interest. The firm was also assessed a civil penalty of $160,000 while the owner was assessed a civil penalty of $20,000 and barred from the industry.
To read the complete SEC press release, click here.