SEC Charges Former Municipal Bond Salesman with Fraudulent Trading Practices
Dec. 18, 2018
File No. 3-18936
December 18, 2018 - The Securities and Exchange Commission today instituted settled proceedings against Chris D. Rosenthal, a former registered representative and municipal bond salesman for UBS Financial Services Inc. The SEC's order found that Rosenthal engaged in fraudulent trading practices that helped unregistered brokers, known in the industry as "flippers," who were deceptively posing as retail investors to obtain municipal bonds in primary offerings. The SEC previously filed charges against unregistered brokers for engaging in related practices in municipal bond offerings.
According to the SEC's order, from 2012 to 2016, Rosenthal engaged in deceptive practices designed to circumvent the priority that is given to retail investors in new issue municipal bond offerings. For example, the SEC's order found that, when placing orders for unregistered brokers in new issue municipal bond offerings distributed by UBS, Rosenthal falsified zip codes associated with the brokers' accounts. Doing so made it appear as though the orders had been placed by retail clients. The SEC's order also found that Rosenthal helped UBS municipal bond traders obtain new issue municipal bonds by placing dealer stock orders - which would ordinarily get lower priority in a new issue allocation - through the unregistered brokers, giving the impression that the orders were for customers rather than for UBS's trading inventory. In addition, the SEC's order found that Rosenthal engaged in a parking scheme with the unregistered brokers by arranging for them to purchase new issue bonds in offerings distributed by UBS, with the agreement that they would sell them back to UBS at a prearranged price. The parking scheme made it more likely that UBS traders could obtain new issue bonds for UBS's trading inventory.
The SEC's order found that Rosenthal willfully violated the antifraud provisions of Sections 17(a)(1) and (3) of the Securities Act of 1933, Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder, as well as disclosure and fair dealing provisions of Rules G-11(b), G-11(k) and G-17 of the Municipal Securities Rulemaking Board. The order also found that Rosenthal caused the unregistered brokers' violations of Section 15(a)(1) of the Exchange Act. Without admitting or denying the SEC's findings, Rosenthal consented to a cease-and-desist order barring him from association with various regulated entities with the right to apply for reentry after five years. The order also imposes payments of $284,080 in disgorgement, $15,128 in prejudgment interest, and a $75,000 civil penalty.
The SEC's investigation, which is continuing, is being conducted by the Division of Enforcement's Public Finance Abuse Unit, including Joseph Chimienti, Laura Cunningham, Warren Greth, Cori Shepherd and Jonathan Wilcox, with assistance from Deputy Unit Chief Mark Zehner. Kevin Guerrero and Ivonia Slade supervised the investigation.