Regulators Investigate Fraud in the Municipal Bond Market
The Financial Industry Regulatory Authority (“FINRA”) is requesting information from brokerage firms involved in several recent municipal bond problems, according to a July 1 article by Leslie Wayne in the New York Times. FINRA says that it is conducting these information “sweeps” with an eye toward possible investigations and disciplinary actions.
The $2.7 trillion municipal bond market has been shaken by a rise in defaults and increased pressure from a weak economy. FINRA says that it will collect information regarding sales practices, pricing, disclosures and customer complaints. FINRA appears to be focusing on firms that underwrote securities tied to derivatives that were sold to municipalities and firms that sold municipal gas bonds that are distressed securities guaranteed by now-defunct Lehman Brothers.
One situation that caught FINRA’s attention involves Jefferson County, Alabama, which is now facing bankruptcy. Bank of America and JP Morgan, among various other Wall Street firms, have been accused of gross misconduct in connection with Jefferson County’s debt situation. Among other things, the Wall Street firms have been accused of selling an excessive amount of municipal derivative securities to Jefferson County and charging outrageous fees to the county in connection with such transactions.
Affected investors, including investors owning Jefferson County bonds, should consult with qualified counsel to determine their rights and potential remedies.
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