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Regulatory Sanctions

Muni Bond Underwritings – Missing Due Diligence Records

March 13, 2018

by Howard Haykin


Written supervisory procedures (“WSPs”) and checklists go hand-in-hand and, while often maligned, they serve practical and necessary functions. Firms that choose not to use these compliance aids / memory joggers therefore operate at their own risk – as was the case with this muni bond lead underwriter.


Cabrera Capital Markets, a FINRA member firm since 1981, agreed to pay a $25K fine to settle FINRA charges that it failed to maintain records evidencing sufficient due diligence on municipal bond issuances in which it was the lead underwriter.


FINRA FINDINGS.   Between August of 2012 and October of 2013, Cabrera was lead underwriter on 5 municipal bond issuances ranging in size from $8 million to $150 million. For each of the issuances Cabrera failed to maintain records evidencing sufficient due diligence was performed to form a reasonable belief that certain key representations made in the offering disclosure documents were true and complete.


  • While Cabrera maintained due diligence files for each deal, the extent of documentation contained in the files varied from deal-to-deal.
  • Statements provided by Cabrera's representatives indicated that additional due diligence had been performed for which documentation was not maintained in the due diligence files – e.g., email correspondence, analyses of information gathered.
  • Cabrera's WSPs were not reasonably designed to achieve compliance with Rule 15c2-12 because they failed to provide specific direction for the gathering and retention of documents evidencing due diligence when acting as a lead underwriter of municipal issuances.


SEC Rule 15c2-12 (Continuing Disclosure) requires dealers, when underwriting certain types of municipal securities, to ensure that the state or local government issuing the bonds enters into an agreement to provide certain information to the MSRB about the securities on an ongoing basis.


This case was reported in FINRA Disciplinary Actions for December 2017.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2015043640701.