Edward Jones settles, will pay $20 million for overcharging customers

By Tali Rackner

Norfolk, Va., Aug. 13 – Edward Jones and the former head of its municipal underwriting desk agreed to settle charges that they overcharged customers in new municipal bonds sales, according to a press release from the Securities and Exchange Commission.

The firm also was charged with separate misconduct related to supervisory failures in its review of certain secondary market municipal bond trades.

Edward Jones agreed to settle the case by paying more than $20 million, which includes nearly $5.2 million in disgorgement and prejudgment interest that will be distributed to current and former customers who were overcharged for the bonds. Stina R. Wishman agreed to pay $15,000 and will be barred from working in the securities industry for at least two years.

Municipal bond underwriters are required to offer new bonds to their customers at what is known as the “initial offering price,” which is negotiated with the issuer of the bonds. The SEC said an investigation found that instead of offering bonds to customers at the initial offering price, Edward Jones and Wishman took new bonds into Edward Jones’ own inventory and improperly offered them to customers at higher prices.

In other occurrences, Edward Jones entirely abstained from offering the bonds to its customers until after trading began in the secondary market, and then offered the bonds at prices higher than the initial offering prices.

The firm’s customers paid at least $4.6 million more than they should have for new bonds.

“According to the SEC’s order instituting a settled administrative proceeding against Edward Jones, the firm’s supervisory failures related to dealer markups on secondary market trades that involved the firm purchasing municipal bonds from customers, placing them into its inventory, and selling them to other customers often within the same day,” the release said.

“Because of the short holding periods, the firm faced little risk as a principal and almost never experienced losses on these intraday trades.

“The SEC’s investigation found that Edward Jones’ supervisory system was not designed to monitor whether the markups it charged customers for certain trades were reasonable.”

The investigation is still ongoing, the SEC said.

Edward Jones is a St. Louis-based brokerage firm.

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