March 15, 2016

Kansas-based municipal advisor Central States Capital Markets, its CEO, and two employees will pay about $437,327 collectively to settle charges that they breached their fiduciary duties by failing to disclose a conflict of interest to a municipal client.  According to the SEC’s order, while Central States served as a municipal advisor to a client on municipal bond offerings in 2011, two of its employees, in consultation with the CEO, arranged for the offerings to be underwritten by a broker-dealer where all three worked as registered representatives.  Central States did not inform the client of its relationship to the underwriter or the financial benefit it obtained from serving in dual roles.  In three offerings, Central States received 90 percent of the underwriting fees the client city paid to the broker-dealer.  The case is the SEC’s first to enforce the fiduciary duty for municipal advisors created by the 2010 Dodd-Frank Act which required these advisors to put their municipal clients’ interests ahead of their own.  SEC

Tagged in: Financial and Investment Fraud, Regulatory Violations, Securities Fraud,