The SEC announced on Tuesday, September 27 that it had filed a settled administrative proceeding against RBC Capital Markets LLC for misconduct relating to the sale of unsuitable investments (credit-linked notes that were tied to the performance of synthetic collateralized debt obligations or "CDOs") to five Wisconsin school districts. The action is the latest in the SEC's cases arising out of the Financial Crisis of 2008 (the Senate's study of the causes of this crisis is discussed here).
According to the SEC's Press Release, RBC Capital marketed and sold $200 million of the notes tied to CDOs to trusts which had been created by the school districts. The Wisconsin school districts contributed $37.3 million for the purchases of the notes and the trusts borrowed to make up the balance. Although there were "significant concerns" at RBC Capital "about the suitability of the product for municipalities like the school districts," the sales went forward. The SEC also charged RBC Capital with failing to adequately explain the risks associated with the investments in its marketing materials.
RBC Capital settled by agreeing to: (1) cease and desist from committing or causing any violations of Sections 17(a)(2) and 17(a)(3) of the 1933 Act; and (2) pay $30.4 million that will be distributed in varying amounts to the school districts through a Fair Fund.
The SEC had previously filed suit in federal court in Wisconsin against a St. Louis-based brokerage and investment banking firm, Stifel, Nicolaus & Co., Inc., for its role in the sale of the CDO investments to the school districts.
In an information sheet on its website, the SEC states that, prior to these actions, it has charged 72 individuals and entities with securities law violations relating to the market crisis, and that it has obtained orders for penalties, disgorgement, and other monetary relief totaling $1.65 billion.