Kansas advisory firm, Central States Capital Markets was charged with fiduciary breach after the U.S. Securities and Exchange Commission found that they violated the new 2010 Dodd-Frank rule. The securities regulators claimed that they failed to reveal its role with an underwriter on municipal bonds. It is the first-ever fiduciary breach case under the new measure.
The Central States Capital Markets CEO John Stepp and its employees, Mark Detter and David Malone settled the fiduciary breach case with the SEC. The Kansas-based advisory firm agreed to pay $85,000 in civil penalty and $289,827.80 in disgorgement, Reuters claims. The firm fixed the fiduciary breach case without confirming or refuting the allegations. The fiduciary breach case was filed after an undisclosed city hired the firm as its municipal adviser in 2011.
"We are pleased to have this behind us so we can focus on providing financial services to our many satisfied clients, " Jeffrey Jensen, an attorney representing the firm and Stepp said.
It was found that Detter and Malone advised the unnamed city on interest rates and had arranged the city's offerings underwritten by a broker-dealer. Stepp, Malone and Detter also worked as representatives and didn't conduct bidding for choosing an underwriter. The firm didn't divulge any conflict of interest as they benefitted financially from the business. The Central States earned $130,120 in adviser fees and the broker-dealer. They also collected $121,530 in underwriter fees, according to Yahoo.
"If we are going to charge an fee and [the City's administrator] keeps calling us [municipal advisers], should we not resign as [municipal advisers] to this issue? Out of an abundance of caution I believe we should resign," an email sent by Detter to Malone in 2011, Wealth Management reported. They remained in their posts and haven't resigned.
To finalize the fiduciary breach case, the SEC penalized Malone $20,000 and suspended him from the financial service industry for one year, Detter was fined $25,000 and agreed to a two-year bar. Stepp was fined $17,500 and would not participate in the financial industry as a supervisor, investment adviser or municipal advisor in any broker-dealer for a period of six months.
