SEC Charges Former Municipal Bond Trader in Fraudulent Retail Order Scheme
Sept. 3, 2019
File No. 3-19408
September 3, 2019 - The Securities and Exchange Commission today instituted a settled enforcement action against former Wells Fargo Clearing Services, LLC trader Thomas C. Muldoon for perpetrating a fraudulent retail order scheme designed to gain priority in new issue municipal bond offerings.
Municipal issuers commonly require underwriters to prioritize retail customer orders over all other orders when allocating new issue municipal bonds. Orders from broker-dealers who want bonds for their own inventory typically receive the lowest priority and are often unfilled. According to the SEC's order, between January 2017 and October 2017, Muldoon, of Philadelphia, Pennsylvania, improperly acquired new issue municipal bonds for Wells Fargo's inventory by submitting fraudulent retail customer orders when, in fact, Wells Fargo's orders were not retail customer orders. Muldoon found three registered representatives at other firms who were willing to accept these orders as retail customer orders and submit them as such to the underwriting syndicate. The SEC found that Muldoon submitted fraudulent retail customer orders for Wells Fargo's inventory in at least 16 primary offerings of municipal bonds, receiving allocations in 15 of those offerings.
The SEC's order found that Muldoon willfully violated the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder, as well as the fair dealing provisions of Rule G-17 of the Municipal Securities Rulemaking Board. Without admitting or denying the SEC's findings, Muldoon consented to a cease-and-desist order and agreed to pay a $25,000 civil penalty. Muldoon also consented to industry and penny stock bars, with a right to apply for reentry after two years.
For further information about the Commission's efforts to address abuses of the retail order period in municipal bond offerings, see Press Release No. 2018-153 (August 14, 2018) and Administrative Summary 3-18936 (December 18, 2018).
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. The investigation is supervised by Ivonia K. Slade.