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RBC unit resolves U.S. SEC charges over bond abuses, is fined By Reuters


By Jonathan Stempel

(Reuters) -A Royal Bank of Canada unit was censured and will pay more than $863,000 to resolve U.S. regulatory charges it broke rules meant to give retail and institutional investors priority in buying new municipal bonds.

On Friday, the U.S. Securities and Exchange Commission announced that RBC Capital Markets LLC incorrectly distributed bonds to investors called “flippers” and then quickly resold those bonds to other broker/dealers for a profit.

Municipal bonds can be issued by the states or cities to finance operations or projects. They also have tax advantages over U.S. corporate bonds.

RBC, according to the SEC knew or should know that it gave priority to flippers in violation of its regulations on bonds it underwrote.

RBC improperly purchased new bonds it didn’t underwrite from flippers instead of waiting to purchase those bonds from the underwriters.

All the violations took place between 2014-2017.

The $150,000 civil penalty plus interest and disgorgement that RBC will pay includes the alleged violations from 2014 to 2017.

The SEC also fined two RBC employees, Jaime Durando, the head of municipal syndication, and Kenneth Friedrich (ex-head of municipal sales), a combined $30,000 and $25,000, respectively.

All of the defendants denied or admitted wrongdoing.

RBC had no immediate comment. Requests for comment from the lawyers representing other defendants were not answered immediately by them.

The SEC reached several agreements in relation to municipal bond abuse, including an agreement worth $10 million with UBS AG of Switzerland in July 2020.

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