The Financial Industry Regulatory Authority has sanctioned five firms for charging additional fees on municipal and state bond offerings to pay a lobbying organization.
The companies — Citigroup (NYSE: C), Goldman Sachs (GS), JPMorgan Chase (JPM), Bank of America's (BAC) Merrill Lynch and Morgan Stanley (MS) — combined will pay $3.35 million in fines and $1.13 million in restitution to certain issuers in California, Finra said Thursday.
The firms violated fair dealing and supervisory rules of the Municipal Securities Rulemaking Board by obtaining reimbursement for fees they paid to the California Public Securities Association from the proceeds of municipal and state bond offerings, Finra said.
The California Public Securities Association engages in a variety of political activities, including lobbying on behalf of companies seeking to influence California state government.
Finra found that between January 2006 and December 2010, the companies made payments to the association and requested that those payments be reimbursed as underwriting expenses from the proceeds of bond offerings.
This was incorrect as the group's activities did not bear a direct relationship to the bond offerings and were not underwriting expenses, Finra said. The companies also did not adequately disclose the nature of the fees to the issuers and failed to establish reasonable procedures in that area, the regulator said.
In settling the claims, the firms did not admit or deny the charges but consented to the entry of Finra's findings, Finra said.
"Issuers are entitled to know what they are paying for and why. It was unfair for these underwriters to pass along the costs of their Cal PSA membership to the municipal and state bond taxpayers, neglecting to disclose that these costs were unrelated to the bond deals," Brad Bennett, Finra chief of enforcement, said in a news release.