FINRA on watch for schemes diverting new issue muni bonds meant for retail investors

A pair of related Financial Industry Regulatory Authority disciplinary actions settled last year highlight something FINRA doesn't want to see in the municipal securities market: New issue bonds prioritized for offering to legitimate retail investors being diverted elsewhere.

That's according to Meghan Ferguson, a director in FINRA's Department of Enforcement, who spoke during a Jan. 22 panel discussion held as part of a compliance outreach program for municipal advisors and municipal dealers, which was hosted jointly by the Securities and Exchange Commission, the Municipal Securities Rulemaking Board and FINRA.

Though she didn't mention the respondents by name, Ferguson's comments made it clear that she was referring to a FINRA disciplinary action relating to NewEdge Securities LLC and a subsequent, related action involving three individuals.

FINRA settled with the firm in March 2025, and with the three individual respondents the following month. In each of those two actions, FINRA's findings were detailed in a settlement document known as a Letter of Acceptance, Waiver, and Consent.

"This pair of AWCs really illustrates how enforcement is laser focused on our core mission of investor protection and market integrity," Ferguson said. "These municipal bond schemes improperly divert new issue bonds to bad actors at the expense of bona fide retail investors."

The schemes "involve deception and undermine issuer intent to really prioritize bona fide retail investors in the new issue allocation process," Ferguson said.

"So for 2026 and beyond, we remain committed to rooting out this kind of misconduct to make the marketplace fair for everyone," she said.

In her remarks, Ferguson also emphasized that AWCs are a resource firms can use. In its AWCs, which are published on its website, FINRA strives "to clearly identify the basis for each charge and the basis for sanctions," she said.

"There were around 17 AWCs issued last year that charged violations of MSRB rules," Ferguson said. "The AWCs, by design, contain a lot of transparency and explication that we hope will continue to benefit firms that are trying to do their best to comply."

In its AWCs, FINRA also makes a point of highlighting not just violations and problems but also "positive and proactive remedial steps" firms may have taken, she said.

"So I think that side of the coin can also be helpful for firms that are checking out that public resource," Ferguson said.

The AWC submitted by NewEdge, which was accepted by FINRA on March 21, 2025, indicated that the firm had consented to FINRA findings detailed in the document without admitting or denying them.

Similarly, the AWC pertaining to the three individuals, accepted by FINRA on April 21, 2025, said that those respondents had consented to FINRA's findings contained in that document without admitting or denying them.