Oppenheimer ordered to pay $1.2 million penalty to SEC in limited offering exemption case

Oppenheimer & Co. will pay a $1.2 million civil penalty to the Securities and Exchange Commission as part of a Dec. 10 final judgment entered in a case concerning what an SEC complaint alleged were Oppenheimer's "repeated failures" to comply with limited offering exemption requirements.

The final judgment, signed by U.S. District Judge Dale E. Ho, was filed in the U.S. District Court for the Southern District of New York. Oppenheimer consented to the judgment's entry without admitting or denying the complaint's allegations, the Dec. 10 filing said.

The order closes a chapter that began in 2022 when the SEC filed suit against Oppenheimer and separately announced settlements with BNY Mellon Capital Markets LLC, TD Securities (USA) LLC, and Jefferies LLC, charging each of those four firms with failing to comply with municipal bond offering disclosure requirements.

"Each of the firms purported to rely on an exemption to the typical disclosure requirements called the limited offering exemption, but they did not take the steps necessary to satisfy the exemption's criteria," the SEC said in a 2022 litigation release.

Among other things, the limited offering exemption requires that underwriters such as Oppenheimer "have a reasonable belief that the municipal securities are being sold only to sophisticated investors that are each buying the securities for a single account without a plan to distribute them," the SEC said in its September 2022 complaint against the firm.

However, from June 15, 2017 through April 27, 2022, Oppenheimer sold securities in at least 354 municipal offerings "in purported reliance" on the exemption when it hadn't fulfilled the exemption requirements, the complaint said.

"In each violative offering, Oppenheimer sold municipal securities to broker-dealers and/or investment advisers when Oppenheimer did not have a reasonable belief that those entities were buying for their own accounts," the SEC's complaint said. "In fact, Oppenheimer knew or should have known those entities may have been buying the securities on behalf of their customer and/or client accounts."

Despite that, "Oppenheimer made no inquiry to determine if those entities were buying on behalf of their customers and/or clients and, if so, whether such investors met the exemption criteria," the complaint said.

Oppenheimer, throughout the relevant period, lacked policies and procedures reasonably designed to make sure it complied with the limited offering exemption when acting as underwriter in limited offerings of muni securities, the SEC's complaint said.

"At the same time, Oppenheimer made deceptive statements to municipal securities issuers by representing that it would and did comply with the limited offering exemption requirements," the complaint said. "Oppenheimer was negligent in making these statements because its regular practice was to not obtain the information necessary to know whether its sales of municipal securities would or did meet the limited offering exemption requirements."

Oppenheimer garnered at least $1,938,580 in net profits in connection with the 354 violative offerings it conducted, the complaint said.

In addition to the $1.2 million civil penalty, Oppenheimer under the final judgment is permanently enjoined from violating Rule 15c2-12 of the Securities Exchange Act of 1934 "by acting as an underwriter in a primary offering of municipal securities with an aggregate principal amount of $1,000,000 or more without satisfying the requirements of Rule 15c2-12 or any stated exemption from such requirements."

Oppenheimer is also permanently enjoined from violating Municipal Securities Rulemaking Board Rule G-17 "by failing to deal fairly with all persons and/or by engaging in any deceptive, dishonest, or unfair practice by making, either orally or in writing, any false or misleading statement in any communication with any municipal securities issuer, about
defendant's compliance with Exchange Act Rule 15c2-12(d)(1)(i)."

Also according to the final judgment, Oppenheimer is permanently enjoined from violating MSRB Rule G-27 by failing to have "and/or enforce" written supervisory procedures sufficiently designed to ensure that the firm's municipal securities activities are in compliance with Rule 15c2-12.